Thursday, June 9, 2011

Types of Public Enterprises

Type of Public enterprises:
Public Enterprises are operated in various forms. Earlier departmental organizations were preferred but as the privatizations policy emerged during 1980s and laissez-faire policy got fame, debate remains in top to find which form is suitable. These days, importance of public enterprises and suitableness of Public Enterprises are categorized depending upon economical, social and political condition of the state.  Departmental organizations may be supposed to be better one has to produce arms and ammunitions for the country.
Public Enterprises are categorized on various bases. Functionally, public enterprises are categorized as:
1.      Public Enterprises of Industrial types
2.      Public Enterprises for Service
3.      Public Enterprises …
4.      Public Enterprises for public utilities
But more consciously, Public Enterprises are categorized on the basis of Structure. Structurally, types of Public Enterprises are as follows:-
1.      Departmental Organizations
2.      Public or Statutory Corporations
3.      Government Company
4.      Other forms (Co-operatives, operating contract etc)
In the following part, each type of public enterprises is explained.
1.      Departmental Organization (PE): This is the oldest form of managing public enterprises. Such organizations are established as a part of public organizations providing goods and services to its citizens. Public servants are the employees of the enterprises and they are deputed as a part of their job transfer. They may not have specific skill and professionalism but they work for a specific time period. Line ministerial Chain of command is also the chain of command of the organization. Ultimate accountability remains upon the Political but administrative authority carry out the day-to-day function of the organization.
·         Administrative authority provides clear and concentrated source of authority so it is easy to run day to day function.
·         Accountability remains upon the politician but the actual work is carried out by bureaucrats.
·         Ensures high degree of public accountability and work efficiency.
·         Government has better control over its fund.
·         High level of secrecy maintenance.
·         Better inter-agencies co-ordination and cooperation.
·         The fund is financed by treasury and its revenue is also paid to the treasury.
·         Financial and all other activities are kept within annual budget.
·         Accountable to government and parliament but not to the public directly.
·         Always civil servants, not searching highly competent professionals.
·         Lower autonomy because it has to be accountable to the parliament.
·         Delay and red-tapism due to bureaucratic hierarchy.
·         Lack of efficient personnel and professionals.
·         Lack of flexibility in functioning.
·         Lack of business principles and commercial inexperience.
·         Dominance and high influences of politics.
·         Excessive parliamentary control.
·         Rigid and adherence, rules and procedures.
Talking about the disadvantages, professor Greaves says that the basic and soundest reason for avoiding departmental form is to get freedom form the "dead hand of treasury". He emphasized that departmental organizations are not free to operate in business line. They are not performing as they could do. The activities and functions are limited within the limit of government. For further information see: Dynamics of Public Enterprise Management,
2.      Public or Statutory Corporation: Public or statutory corporation is an autonomous legal entity established by the Act of the legislature. The public corporations got fame in the post war Britain; the public corporations were the chosen instrument for the management of nationalized industries. Public corporations are established by the specific law, has autonomy regarding almost all functions such as human resource management, financial management and so on. There is flexibility in functioning and has public control over it. For further information see:Management of public sector enterprises in India
Defining public corporation, Ernest Davis says “A corporate body created by public authority with defined functions and financially independent. It is administered by a board appointed by public authority to which it is answerable.” Similarly Herbet Marisson says “public corporations is a combinations of public ownership public acceptability and business management for public ends”
·         Immunity form Parliamentary Scrutiny: Parliament does not interfere into day-to-day work contrary to departmental organization but it can discuss and determine matters of policies.
·         Freedom regarding personnel Management: Employees of public corporation are not of civil service and not governed by government. Personnel are managed under the provision of the act.  Terms of conditions, facilities and other benefit are determined by the same act.
·         A body corporate: It is legal entity and has a separate existence.
·         Has a distinct relation with the government. 
·         Independent financial operation and commercial Audit.
·         Operation on business principles and on commercial line.
Public corporations were created as of the demand of managerial autonomy. They have autonomy regarding its funds and personnel management. In Nepalese context, Citizens investment trust, employee’s provident fund, Nepal Food Corporation, etc are the example of public corporation.
·         Managed in business line.
·         Autonomy in working.
·         Independent in financial matters.
·         Public service motive.
·         Permanent existence.
·          Public accountability.
·         Benefits of efficient staff.
·         Consistent with national policy
·         Operational flexibility
·         Representations in various interest
·         Lack of Independent interest.
·         Difficultly in changing legislations.
·         Divergent interests.
·         Limited autonomy
·         Excessive accountability
Principles of Public Corporations
·         No civil service personnel
·         Public service motive
·         Self-contained finance
·         Autonomy working
·         Fixed terms of chairperson
·        Judicial control
·        Commercial audit
3.      Government Company
Government Company is a legal entity established under ordinary company act of the country. Majority of the ownership of Government Company remains with the government. This is the one of the most used form of Public Enterprises.  Defining Government Company Professor A.M. Hanson says, “State Company is an enterprise established under the ordinary company law of the land /country, concerned in which the government has a controlling interest through its ownership of all or some of the share”. For the sake of simplicity, stated otherwise by the company law of the concerned state, Government Company must have some ownership (51% or more). The Government Company is established by the executive decisions.
·           Employees are not of civil service like that of departmental PE, they have their own policies regarding to pay and promotions etc but the persons who managed the deputation are of civil service.
·           Established under company act of the country.
·           Created by executives' decision.
·           Has independent financial management and economic motive.
·           It is managed by independent governing board government
·           Operated under company act as that of private sector.
·           Not intended to earn profit in first sense.
·           Facilitates participation of private sector through share.
·           Has its own charter like public corporations and has autonomy of operation.
·           It has its own legal entity.
·           Self contained finance and personnel management system.
·           Managed by professionals not by civil servants
·           Facilitates nationalizations.
·           It is created by executive decisions and action not by legislature.  
·           Government control lack of accountability.
4.      Other form of Public enterprises
a.       Operating contract:  In this types of public enterprises, ownership vests in the government but management is entrusted to a private party on an agreed remuneration, with a view to getting the benefit of private control and management (Laxmi Narain, Principles and practice of public enterprise management)
Cooperative society: Cooperative societies are established by the government tosupport cooperative movement of the country. In such establishment if government has majority of investment, it becomes public enterprises. Cooperatives are established under the provision of by-laws and board of the society is formed by the government. For further information see: Entrepreneurship Development in Public Enterprises (Management Development Series)

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