Public Sector Businesses (Cambridge International IGCSE Business)

The Public Sector

Spec point — "Business organisations in the public sector, e.g. public corporations"

The public sector

• The public sector is a key element of mixed economies
• Public sector firms are owned and controlled by the government and are usually funded through taxation
• Their main goal is to provide services such as education, healthcare or emergency services that may not be provided by profit-focused businesses

Hospitals, schools and emergency services are often partly or fully provided by the public sector

• Public sector firms operate on a local, regional or national government level

  • Transport for London provides local transport in the London region
  • Caribbean Airlines operates across several countries in the Caribbean, with ownership shared by the governments of Trinidad and Tobago, Jamaica and Guyana
  • Comboios de Portugal provides train services across the country and in to Spain

• Governments are likely to retain ownership of organisations in the public sector for several reasons

  • They are strategically important to the country, such as the defence or justice systems
  • They provide essential services such as water, electricity supply or emergency services
  • They are merit goods that may not be provided in sufficient quantities by private businesses, such as education or health services

Public corporations

• Public corporations are owned by the government

  • They are usually businesses which were once owned by private individuals and have been nationalised

    • In 2022, the German government nationalised Uniper, the country's largest importer of gas, to improve energy security as a result of the conflict between Russia and Ukraine
    • In 2008, the UK government nationalised Northern Rock, a bank which was on the verge of collapse as a result of the global financial crisis

• Government ministers appoint a Board of Directors, which manages the corporation

  • They are expected to run the corporation according to objectives set by the government
  • Although they may be profitable, the aim of corporations is to provide a public service
  • Governments should not interfere with day-to-day operations and decisions of the corporation

Evaluating public corporations

Other public sector enterprises

• In some cases, profit-making companies are partly owned or controlled by the government

  • They sell shares on the publicly listed stock exchanges so they are a mix of the private and public sector

    • In the US, Amtrak (passenger trains) is a state-owned for-profit enterprise whose shares are majority owned by the federal government

• Other businesses are funded by central and local government

  • They may still levy charges for some services

    • The NHS is free at the point of use for British citizens, but they must pay for medical prescriptions, some procedures and parking on hospital premises
    • The French state funds leisure facilities such as swimming pools and public sports venues but usually charges users a small fee for their use
    • Due to the constraints of government spending in many countries, many services are now being privatised or suffer from insufficient funding