Public corporation, also known as public enterprise or statutory corporation, may be defined as a large scale business organisation set up, owned and financed by the government of a country mainly to provide services to the members of the public. They are directly under the control of the government to cater for the welfare of the people.
Public corporations are run by the government through the tax paid by the people. They are established by an act of parliament or decree. The public corporation is controlled by board of directors, appointed by the government. They are not set up to make profit but to provide special services to the public.
Examples of public corporations in Nigeria are:
- Nigerian Ports Authority (N.P.A.).
- Nigerian Railway Corporation (N.R.C.).
- Power Holding Company of Nigeria (P.H.C.N).
- Federal Radio Corporation of Nigeria (F.R.C.N.).
- Nigerian National Petroleum Corporation (N.N.P.C.).
- Nigerian Communications Commission (NCC).
FEATURES OR CHARACTERISTICS OF PUBLIC CORPORATION
- Ownership: Public corporations are owned and financed by the government.
- Establishment: Public corporations are established either by decree or act of parliament.
- Objective: They are established purposely to provide essential services to the generality of the people.
- Legal entity: It is a legal entity as it can sue and be sued in its own right.
- Management: Public corporations are managed by board of directors who are appointed by government.
- Not profit oriented: Public corporations are not set up to make profit but to provide goods and services to the people.
- Monopolistic in nature: Some corporations are conferred with monopoly power by an act of parliament or decree.
- Government and tax payers bear the risks: The risks of the business are borne by the government and the tax payers, who have provided the capital for financing the business.
- High capital requirement: A public corporation requires large capital to setup, which cannot be provided by private individuals.
- Employees are public servants: Workers in public corporations are public servants and are treated as such.
- Accountability: The management of public corporations (board of directors) are accountable to the government that set up the corporation.
- Restriction of services: It is true that public corporations provide services but each one is restricted to the provision of special services, e.g. P.H.C.N provides electricity while NITEL is involved in communication.
ADVANTAGES OF PUBLIC CORPORATIONS
- Provision of infrastructural facilities: Public corporations provide infrastructural facilities, such as roads, schools, railway, electricity, to the populace.
- Availability of large capital: Since public enterprises are owned by government, there is always availability of sufficient capital to ensure expansion of the enterprises.
- There is continuity: Public corporations can last for a long period of time. In other words, there is perpetual existence.
- Development of capital projects: Establishment of public corporations can ensure the development of capital projects, e.g. rural electrification.
- Avoidance of exploitation of consumers: Public corporations are consumer -conscious as they ensure that the exploitation of consumers is greatly reduced.
- Creation of higher standards: The government enters into business in order to ensure higher standards, e.g. provision of educational facilities.
- Accountability to the public: Public enterprises are accountable to the public because they have to submit their annual reports to the parliament.
- Legal entity: A public corporation is a legal entity, it can sue and be sued on its own.
- It caters for the interest of workers: In public enterprises, the interest of the workers is catered for and the employees have a great sense of security.
- Provision of employment opportunities: Public corporations provide employment opportunities for the teeming number of the unemployed.
- Enjoyment of large scale production: As a result of the availability of large capital for expansion, production can be enhanced and increased.
- Generation of revenue: Revenue is generated by the government from public corporations, e.g. water rate or electricity bill, to finance other projects.
DISADVANTAGES OF PUBLIC CORPORATIONS
- Requires large capital: The cost of establishing a public corporation is very high, i.e. large capital is involved.
- Government interference: Government can interfere in the activities of public enterprises through the appointment of unqualified and incompetent people as board members.
- Inefficiency in operation: Lack of competition can bring about inefficiency in business operation.
- Danger of monopoly: Public corporations are monopolistic in nature, e.g. P.H.C.N, hence it can abuse the privilege.
- Bureaucratic tendencies and red tapism: Decision-making may be slow because it has to pass through many people or channels before approval.
- Corruption and mismanagement: Many public enterprises in Nigeria have become the major areas for embezzlement and mismanagement of the nation’s resources.
- Not profitable: Most public enterprises are run at a loss because they are too large and complex to manage.
- Wastage: In public enterprises, waste are not usually discouraged because the belief is that the losses are borne by the tax payers.
- Lack of initiative: Lack of initiative is always exhibited in public enterprises as government functionaries must endorse the programmes and policies of the establishment.
- Lack of privacy: Since the annual report must be presented to the public, such corporations have no privacy of their own.
REASONS FOR THE ESTABLISHMENT OF PUBLIC CORPORATIONS OR REASONS FOR GOVERNMENT PARTICIPATION OR OWNERSHIP OF BUSINESS ENTERPRISES
- High capital requirement: Public corporations usually require heavy capital outlay, which may not be affordable by private enterprises.
- Generation of revenue: Public corporations help the government to generate revenue needed to finance other government projects.
- To prevent foreign dominance of the economy: Government can venture into some enterprises in order to prevent or reduce foreign control of the economy by foreign investors.
- To avoid wasteful competition and duplication: Public corporations are established to avoid wasteful duplication of capital resources.
- To provide infrastructural facilities: Government establishes certain enterprises to provide infrastructural facilities like roads and railways on which returns may not be forthcoming and which may, therefore, not attract investment by the private sector.
- To prevent monopolistic tendencies: Public corporations are set up to prevent monopolistic tendencies resulting in very high prices or charges if undertaken by private enterprises.
- To ensure even distribution of income: Government engages in some enterprises in order to ensure fair and even distribution so that income would not be concentrated in a few hands.
- Provision of essential services: Government engages itself in economic activities in order to provide essential services at subsidised rate, e.g. water and electricity.
- To ensure higher standard of services provided: Government can participate in enterprises to ensure higher standard of services provided, such as education, which requires very expensive facilities that may not be affordable to the private sector.
- For strategic and security reasons: Government may engage in business to control certain key industries such as airports, seaports, defence, the oil industry installations in which the government cannot afford competition for strategic reasons.
- Employment opportunities: Govern-ment may embark on business in order to create employment opportunities for the people.
- To promote economic development: Government also invests in some enterprises, e.g. banking and insurance in order to have firm control over the economy and regulate it for developmental purposes.
WAYS IN WHICH THE GOVERNMENT PARTICIPATES IN ECONOMIC ACTIVITIES
- Establishment of financial institutions: Government participates in economic activities by establishing financial institutions to grant overdraft and loans to private and public enterprises, e.g. Central Bank and Industrial Banks.
- Establishment of public corporation: Public corporations are established by government to provide essential goods and services for the welfare of the people.
- Establishment of joint business ventures: Government, in conjunction with some private entrepreneurs, can establish joint business outfit to provide goods and services for the people.
- Import monopoly: Government can also participate in economic activities by exercising monopoly over certain items of importation – a system in which government is the only agency that can import certain goods for economic reasons.
- Enactment of appropriate laws: Government can also participate in economic activities by the enactment of appropriate laws which govern the smooth operation of certain business activities.
- Granting of tax holidays: Government can grant tax holidays to companies by way of attracting entrepreneurs to set up business.
- Provision of social amenities: For economic activities to thrive, government must provide social amenities like roads, electricity, water and telecommunications.
- Indigenisation policy: Indigenisation policy is a process by which government makes the indigenes of a nation to participate actively in the running of major sectors of her economy.
- Nationalisation policy: In nationalisation policy, government tries to make sure that that state controls the ownership and management of key industries.
ADVANTAGES OF GOVERNMENT OWNERSHIP OF PUBLIC CORPORATIONS
- Provision of essential services: Government is involved in ownership of public corporations because of the provision of essential services, which it renders to the public.
- Prevention of exploitation and discrimination: Exploitation and discrimination associated with private and public enterprises are prevented as a result of government ownership of enterprises.
- Creation of more employment opportunities: With the ownership of public corporations vested in the hands of the government, more employment opportunities are created.
- Protection of some strategic industries: Some strategic industries, e.g. oil industry, airport are seaports, are protected against foreign ownership and control.
- Economic development: Government set up public corporations to enhance the economic development of the country.
- Higher standard of living: The provision of infrastructural and social amenities and services by public corporations, e.g. water, roads, airport and electricity, helps to raise the standard of living of the people.
- It confers monopoly: The establishment of public corporations by government helps to confer monopoly on these corporations thereby removing duplications that could have arisen if certain essential services were to be provided by private enterprises.
- Even distribution of services: With public corporations, certain services, e.g. electricity, are evenly distributed to many parts of the country.
- Generation of revenue: Public corporations are set up sometimes to assist the government generate running costs at least or self-sustaining revenue.
- Affordable and cheap services: As a result of the huge capital invested in public corporations, they ‘ enjoy economies of large scale production, which result in the production of cheap goods and services.
DISADVANTAGES OF GOVERNMENT OWNERSHIP OF PUBLIC CORPORATIONS
- Lack of choice by consumers: As a result of ownership of public corporations by government, which leads to monopoly, consumers are denied their right to choose between alternatives.
- Frequent interference: Government officers always interfere in the activities of public corporations and this tends to lower their productivity.
- High level of corruption: There is a high level of corruption in public corporations because the workers and officials believe that government properties are nobody’s properties.
- Lack of qualified personnel: Inefficient and unqualified personnel are always employed to work in public corporations because such appointments are based on political considerations.
- High level of inefficiency: The required efficiency that would ensure the making of profit in private enterprise is completely lacking in public corporations.
- High level of bureaucracy: As a result of government ownership of public corporations, there exists high level of bureaucracy and red-tapism, which do not create opportunity for effective performance.
- Neglect of private sectors: Private sectors are sometimes neglected because the government tends to pay more attention to public corporations.
- Government instability: As a result of frequent changes of government, there is also frequent changes in boards of corporations, which do not ensure their effectiveness.
SPECIFIC PROBLEMS ASSOCIATED WITH PUBLIC CORPORATIONS
- Political Instability: As a result of frequent changes in government, there are also corresponding changes in the board of directors and officials and this does not encourage effectiveness and continuity in the management of public corporations.
- Frequent government interference: Government always interferes in the administration of public corporations and this results in poor performance of such corporations.
- Lack of qualified personnel: Inefficient and unqualified personnel are always employed to work in public corporations because such appointments are based on political rather than technical consideration.
- Negative attitude of workers: Majority of the workers in public corporations have a negative attitude to work because they regard public corporation as no-man’s job. Most of them will tell you that you “put government work on the shoulder and not on your head “
- High level of embezzlement: Public corporations are associated with high level of embezzlement on the part of board members who have to settle government officials that appointed them and this will eventually lead to financial bankruptcy of the corporation.
- Favouritism in appointments: There is high level of favouritism in appointment of board of directors and this results in efficiency in the administration of public corporations.
- Political victimisation: Most board of directors and other important officials in public corporations are sometimes victimised due to certain political reasons and this makes such corporations ineffective.
- Practice of sectionalism and ethnicism: The practice whereby sectionalism and ethnicism are used to appoint board members and key officials to manage a public corporation normally leads to lawlessness and inefficiency.
SOURCES OF FINANCE TO PUBLIC CORPORATIONS
- Loans and overdrafts: Public corporations can obtain loans and overdrafts from commercial or development banks.
- Internally generated revenue: Public corporations can also raise capital from revenue generated internally.
- Grant from government: Most of the fund available to public corporations are mainly from grants given by government.
- Grant from international financial institutions: Public corporations can also derive their fund from some international financial institutions such as the International Monetary Fund (I.M.F.) and African Development Bank (ADB).
- Grant from foreign countries: Foreign countries can also give grants or finance for the setting-up or running of a public corporation as a special aid, e.g. Britain, United States of America and Japan.
DIFFERENCES BETWEEN PUBLIC CORPORATION AND PUBLIC LIMITED LIABILITY COMPANY
- Ownership: The government.
- Formation: Act of Parliament or decree.
- Control: Government appoints board of directors.
- Capital: Government and through grants.
- Aim: Provision of essential services.
Public Limited Company
- Ownership: Shareholders.
- Formation: Incorporation.
- Control: Board of directors are elected by shareholders.
- Capital: Provided through shares and debentures.
- Aim: To make profit.