Public Enterprise

• Public Enterprise


  A business organization wholly or partly owned by the state and controlled through a public authority
• Public Enterprise (definition)


  Any commercial or industrial undertaking owned and managed by the state government with a view to maximize social welfare and uphold the public interest
• Characteristics of Public Enterprise

  • Business Enterprise of Government
  • Government ownership, management, and control
  • Service motive
  • Autonomy
  • Public accountability
  • Continued existence
• Business Enterprise of Government

  • Public enterprises are business enterprises established by government engaged in manufacturing, marketing, public utilities, and services
  • Government makes budget allocations to public enterprises, financed by state
• Government ownership, management, and control

  • The top-level management of public enterprises is appointed by government (consists of board of directors and chief executive officer)
• Service motive


  • Generally, public enterprises have service motive
  • They also generate profit and pay tax to the government
  • They provide essential goods and services to public at reasonable price
• Autonomy


  • Public enterprises enjoy autonomy or semi autonomy in operations
• Public accountability


  • Public enterprise have public accountability
  • They are also accountable to general public through government
  • The auditor general reports to the parliament about the performance of public enterprises
• Continued existence


  • Public enterprises have continued existence - They are created by law and can be dissolved only by law - Changes in shareholders, management and employees do not affect the existence of public enterprises
• Importance of Public enterprise

  • Planned Development
  • Infrastructure Development
  • Basic And Heavy Industries Development
  • Public Utilities Concerns
  • Balanced Development
  • Employment Creation
  • Government Revenue
  • Economic Growth
  • Social welfare
• Planned Development


  Most developing countries have five years development plans for economic development. Public sector programs are also implemented by public enterprise. They are important for planned development of the country
• Infrastructure Development


  Public enterprises are important to build infrastructure in the country. Infrastructure consists of transport, communication, power, irrigation, drinking water and buildings. They require huge investment and long period is required to complete them
• Basic And Heavy Industries Development

  Iron and steel, electricity, cement, fertilizer, and telecommunication are examples of basic and heavy industries. They are essential for industrialization of the country
• Public Utilities Concerns


  Public utilities consists of services like water supply, electricity, oil and gas, railways, airlines, and public transport. Government has responsibility to provide such services at reasonable price. Public enterprises are important to provide public utility services at low cost
• Balanced Development


  Government requires balanced development in all regions of the country. Private sector is not attracted to less developed regions because of low economic gain. Public enterprises are important for industrial development of backward regions
• Employment Creation


  Government has responsibility to create employment opportunities in the country. Private sector is not interested to create employment at the cost of profit. Public enterprises are important to generate employment opportunities in the country
• Government Revenue


  Public enterprises are important source of government revenue. They pay various types of taxes. Such taxes are important in government revenue. Profit generated by public enterprises can be used to fund development programs
• Economic Growth


  Public enterprises are the drivers of economic growth in the country. They develop infrastructure facilities and operate public utilities. They use modern technology for production purposes. All these aspects help in acceleration of economic growth in the country
• Social welfare


  Public enterprises provide essential goods and services at reasonable price. They also supply essential commodities such as fertilizer and food grains at subsidized price. This promotes social welfare in the country
• Points to ponder about Public Enterprises

  • Established, owned, managed and controlled by government
  • Have autonomy or semi autonomy in functioning
  • Have service motive to promote social welfare
  • Have public accountability
  • Have separate legal entity
• Advantages of Public Enterprise

  • Charges low prices
  • Expert administrative services
  • Provide essential facilities like education, health at reduced prices
• Disadvantages of Public Enterprise

  • Don't care attitude
  • Government interference
  • Corruption and embezzlement of funds
  • Lack of competition may lead to inefficiency
  • Consumer's choice is restricted to the state if the business is monopoly
• Public enterprises are subject to various issues as a result of their unique hybrid nature. They often have conflicting objectives, sometimes as a result of ambiguously set mandates
• Private firms have always had a clear proprietary objective: to earn profit
• Bureaucracies are entirely different animals with different objectives from private firms. They are aimed at social or political objectives handed down from above by their political masters
• Public enterprises involve a mix of both types of objectives, which may contradict one another. More specifically, the pursuit of certain objectives social or political objectives like economic development, may contradict public enterprises' proprietary objectives
• This leaves public enterprises unable to maximize their effectiveness in attaining their multiple objectives due to having to balance them
• It also often leaves them unable to ensure their financial viability or exercise fiscal restraint, two objectives which recent legislation has underlined
• Another issue that may plague public enterprises is that of ministerial or political interference in which politicians may become overly involved in the running of public enterprises or may meddle in their affairs to the detriment of efficiency, management initiative and employee morale
• The Philippine public enterprise sector in particular has historically been hounded by numerous problems that have been raised by studies time and time again since the 1950s, notably: displaying "rampant corruption, mismanagement and inefficiency", nepotism, being vehicles for crony capitalism under the Marcos regimes, a lack of a clear policy on government intervention in the economy, "inadequate monitoring and control", and "poor corporate performance"
• Roberto Benedicto, the "Sugar King" of Marcos Sr. era


  Marcos's proclamation of martial law allowed Benedicto to take control of the Philippine Exchange Company (Philex), which monopolized local hacienderos' (sugar barons) international trade. Benedicto used Philex to buy cheap sugar from local producers and sell it abroad for large profits. Aided by Marcos's presidential decrees under martial law, Benedicto later seized control of the Philippine Sugar Commission, which accounted for 27% of the Philippines' dollar earnings at the time. In turn, a big segment of the profits from this sugar monopoly was deposited in a "special fund" which was "subject to the disposition of the president for public purposes."
• Coco Levy Fund Scam

  It is alleged that Marcos, Danding Cojuangco, Juan Ponce Enrile, and others conspired to tax coconut farmers, promising them the development of the coconut industry and a share of the investments, but on the contrary used the collection fund for personal profit, particularly in the purchase of United Coconut Planters Bank (UCPB) and a majority stake in San Miguel Corporation (SMC)
• The Coco Levy Fund is estimated to have ballooned anywhere in the range of ₱100 billion to 150 billion in assets
• In 2012, a Supreme Court decision awarding ₱71 billion in coconut levy funds to coconut farmers was only part of the goals of a 50-year struggle to bring to the poor farmers the benefits of the Marcos-era levies gouged from them
• In the Philippines, many people have been biased against government engaging in business. Government corporations have often been described as "convenient political tools" which are overstaffed, inefficient, and graft-ridden
• A former president of the Philippines was even reported to have said that expanding government ownership of business meant socialism "the twilight that falls into the darkness that is communism"
• In spite of these strong biases and naive attitudes toward government corporations, public enterprises in the Philippines were established and increasingly utilized before World War II to cope with efforts at nation building, and in the post-war period to help solve difficult problems of the socio-economic develoment
• The number of goovernment corporations has actually increased from 13 state firms in 1951 to 37 public enterprises in 1964
• Ideas of PE development have evolved from the original focus on economic development to what Todaro describes as a "multidimensional process involving major changes in:

  • social structures
  • general practices
  • national institutions, as well as the acceleration of
  • economic growth and;
  • Reduction of inequality and of absolute poverty
• Three objectives of development (Todaro):

  • To increase the availability and widen the distribution of basic life-sustaining goods such as food, shelter, health and protection;
  • To raise levels of living including, in addition to higher incomes, the provision of more jobs, better education and greater attention to cultural and humanistic values, all of which will serve not only to enhance material well-being but also to generate greater individual and national self-esteem;
  • To expand the range of economic and social choice to individuals