Table of Contents
A public corporation is a company owned by the state and the shares made available to the public as the primary stakeholders (Burnham & Horton, 2012). The main features of such corporation include the limited liability status and the stakeholder involvement. The initial capital for the operation of the public corporation is usually allocated by the government through the Treasury. In such a way, they have a possibility to borrow money from the government while management is executed by the government-appointed board of directors.
The public and merit goods are solely provided by the public sector because of the nature of such goods. Most of their consumption does not affect the quantity of the goods that are supplied or consumed by the tax-payers. Additionally, there are no marginal costs that are included in the production of the public goods since the public corporations manufacture them at a low price. This aspect implies that the public can consume the goods without incurring charges, and if the people were asked to pay extra money, there is a high possibility they would try to avoid the payment and use the goods for free. Hence, since the public sector produces the public goods using the taxpayers’ money, it would be unfair to charge the public at the point of using them.
It should be mentioned, that the merit goods are supplied by the public sector because they cannot be distributed by the pricing system. Besides, such goods can be provided by the free market with no need of establishing the right quantity. The most common examples of the merit goods include health-care and education (Burnham & Horton, 2012).
The merit goods are believed to have positive effects on the society where the consumption exceeds the private sector supply, because the public sector becomes responsible for maintaining these goods for the benefit of the taxpayers. The goods are usually sustained by the government through subsidies to make them available for consumers. For instance, the healthcare services that are usually provided by the National Health Service, which is financed through taxation. Another example is the books borrowed and supplied by the local authority libraries.
The public sector plays an integral role in the growth of the UK’s economy. The largest part of the public sector consists of the civil servants who work in collaboration with the government to ensure that consumers receive quality services. According to Burnham and Horton (2012), the public sector corporations are responsible for more than 50% of employments in the UK. This aspect is important in the development of per capita income of the civilians in the UK. The corporations also play an important role the development of the SME’s which contributes to the revenue collection. The SME’s in the UK depends on the financial support from the public corporations such as banks to sustain and develop their businesses. The private sector also benefits from the financial services and aids from the public corporations. Besides, they are responsible for fostering the aspect of innovation and creativity in the small enterprises.
Burnham and Horton (2012) discuss that the public sector corporates in the UK have an obligation to maintain infrastructure to facilitate the issue of the supply chain. This is because the private sector contribution to the UK’s economy is highly based on the availability of significant supply chain which can be enhanced by good infrastructure. They are also responsible for providing a conducive investment environment that can encourage a socially productive use of capital, hence the better integration of the UK into the global economy. In addition, the public corporations play a significant role in the transport sector. For instance, the government-owned airlines assist in the transportation of products for export which constitutes the better part of the Gross Domestic Product in the UK.
The current legal status of the public corporations requires them to have a minimum of two directors and two shareholders. They should also hold the annual general meetings and present reports audited by a committee to ensure appropriate usage of funds. What is more, every public sector organization should operate an efficient system that manages the payments. The public resources should be within the stipulated budgets and ensure that the spending is profile sustainable. The Treasury is responsible for coordinating the system that enables the departments to follow the allocated funds and restrict the totals for the public expenditure. However, the public sector may encounter dilemmas in their commitments. In such a situation, they have a legal obligation and are justified in seeking pragmatic alternative that can be reported to the parliament.
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Nationalization has been described as the process of acquiring the private sector companies by the public sector (Beesley, 2013). The reason for this procedure is usually to prevent the appearance of oligopolies. For instance, most utility companies in the UK are responsible for the electricity market in the UK, which can result in the lack of adequate competition and may affect consumers through price collusions. Such scenario can also pose aggressive tactics that may not allow the new companies to enter the market. In such a situation, nationalization can take place to prevent oligopolistic market.
Apart from the above mentioned, nationalization can be used as a strategy to increase the government investments. Some industries usually require long-term financial investment which may not be profitable in the short-run. Therefore, the government intervenes in such situation to improve the services and the long-term investment.
The government can also decide to nationalize the private sector industry to enhance equity and redistribution of public resources. For instance, some nationalized industries have significant externalities that influence the society directly. The transport industries can be nationalized to help to improve the issue of public transport and the economic infrastructure.
Deregulation has been described as the act of government reducing the regulations to enhance competition within the industry. On the other hand, privatization is the process in which the state-owned enterprises ownerships are changed from state to private in order to increase the quality of services. Usually, deregulation of a particular industry takes place when there are too many regulations that obstruct the industry’s ability to compete effectively. On the other hand, privatization of the state-owned corporation is utilized as a strategy to counter the defective capital structures that lead to heavy dependence on the Treasury funding.
Privatization has been regarded as an essential strategy of improving efficiency because of the profit incentive. Beesley (2013) has pointed out that privatized companies usually enhance their operations to maximize the profit incentive. They work to reduce the operations costs that would lead to higher output. The aspect of privatization of the public sector also helps in the reduction of government interferences. It is usually difficult for the public corporations to make hard decisions that can lead to political interferences regarding the layoffs and pay cuts. This aspect has the potential to attract negative publicity that can affect the operations.
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Privatization is also essential in facilitating competition and in such a way reducing consumers’ exploitation. When a public corporation is sold to the private sector, it loses the protection from the government and will strive to adapt to the market challenges. However, this can be achieved by improving services and lowering the cost for the benefit of consumers.
Privatization is a significant strategy for the government to receive instant money that can be used for other areas essential for the economic growth. The government can also collect revenues from the privatized company which can boost the economy growth.
Private corporations are not obligated to reveal their financial results within a short time which means that they cannot be subjected to the pressures of meeting shareholders’ expectations. This aspect is advantageous to the management which is made less vulnerable to the pressures that may be detrimental to their operations. Additionally, privatization can reduce the bureaucratic process in making urgent decisions because of the shorter communication process which is significant in making a crucial decision.
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The primary disadvantage of privatization is that the process tends to focus much on profit maximization than meeting the social objectives that aim at enhancing sustainability. Such scenario appears because some social initiatives for sustainability are too expensive to run and require support from the government. Secondly, there is a lack of transparency in the private sector because the stakeholders are not fully updated regarding the details of the functionality of the enterprise.
Privatization can also result in a high employee turnover rates which require more funds to train the staff. Some companies may overlook this step because of being more profit driven hence lowering the quality of services offered to the public.
In addition, the discussed process can encourage a high rate of conflict of interest amongst the stakeholders due to the minimal government interferences which may hamper the performance of a particular firm. Furthermore, privatization can lead to an increase in corruption and illegitimate methods of acquiring the business deals and government tenders which may affect transparency.
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The UK government’s privatization of the Royal Mails can be seen as the most ambitious and successful privatization that has taken place in the country. Werdigier (2013) has pointed out that it is the biggest privatization the British government has ever faced since the privatization of the railroads more than two decades ago. The government awarded 10 percent of the shares to the employees for free, and they were expected to hold them for at least 3 years. The privatization arose at a time the Royal Mail was competing with other postal services when the consumers preferred email to handwritten mail. The growth of online business and payment system played a significant role in making Royal Mail deliver more online purchased goods and in such a way triggering growth. It can be argued that the recent privatization of the Royal Mail was a brilliant decision because the company is open to the private capital and enhance its competitiveness in mail delivery business. The privatization happened at the right moment, when the need for investing in the business was urgent. According to Werdigier (2013), the company had ploughed back profits worth $4.7 billion into modernization of the operations and the establishment of more branches. However, this funding was not enough to meet the demands that had increased as a result of globalization. Therefore, opening the company for privatization was a significant strategy to ensure enough investment and economic growth.
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The privatization of the Royal Mail also implies that the disputes concerning the Workers Union over the working conditions will have minimal impact on the ministers who were directly connected. The Company would thus be less vulnerable to the future liability and evade pressure from the stakeholders who are the citizens demanding for the financial returns. All these aspects make the privatization of Royal Mail a successful strategy for economic development.
The main negative impact is that selling the company to a private sector focuses more on the short-run profitability which can be detrimental to the consumers. Beesley (2013) has also pointed out that making the Company operate as a private sector may lead to them making more money than a flotation. However, Royal Mail was worth more than the government was floating it. The Company may also fail to participate in the CSR as a private entity than it would have performed as a private corporation. It is because they would be focusing more on recapturing the money spent to buy the company hence minimal surplus for implementing the CSR initiative.