Public Corporations Two: Management, Challenges and Future Prospects

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Lesson Objectives

By the end of the lesson, students should be able to:

1. State the reasons for the establishment of public corporations.
2. Discuss ways in which the government participates in economic activities.

Reasons for the Establishment of Public Corporations

• Provision of Essential Services: Public corporations are established to provide essential services such as electricity, water supply, transportation, and postal services. These are services that people depend on daily, and leaving them in private hands might make them too expensive or unavailable to some citizens. Since the main aim of the government is to serve the public interest, it ensures that such services are accessible and affordable by creating public corporations.
• Control of Private Monopolies: In some industries, one or few private companies may dominate, leading to exploitation of consumers through high prices or poor services. To prevent this, governments establish public corporations to compete with or completely control such sectors. By doing this, the government ensures fair pricing, quality services, and protection of consumers from exploitation.
• Even Development of the Economy: Private businesses usually concentrate in urban areas where profits are high, neglecting rural or less profitable regions. To bridge this gap, the government creates public corporations to extend services like electricity, telecommunication, and transportation to all parts of the country. This promotes balanced development and ensures that rural areas also benefit from modernization.
• Creation of Employment Opportunities: Public corporations provide jobs for thousands of citizens in different sectors of the economy. From technical staff in power companies to administrative workers in railways and ports, these corporations absorb a large workforce. The employment generated helps reduce unemployment and improves the standard of living for many families.
• Handling of Large Projects Requiring Heavy Capital: Some industries, like oil exploration, railways, or electricity generation, require very large amounts of capital that private investors may not be able or willing to provide due to risks and long payback periods. The government therefore steps in by setting up public corporations to handle such massive projects. This ensures that vital projects are not abandoned due to lack of private capital.
• Control of Strategic Industries: Certain industries are too important to national security and economic stability to be left in private hands. For example, petroleum, defense, electricity, and water supply are critical to the nation’s survival. Public corporations are established so that the government has direct control over these industries, ensuring that they are managed in the interest of the country rather than for private profit.
• Provision of Goods and Services Not Attractive to Private Investors: Some services are not profitable enough to attract private investors, such as rural postal services, rural electrification, or maintenance of certain transport routes. The government establishes public corporations to provide these services because they are necessary for the welfare of citizens, even if they do not yield high profits. In this way, citizens in less profitable areas still benefit from government support.

Ways the Government Engages in Economic Activities

• Establishing Public Corporations: One of the most direct ways the government participates in economic activities is by creating public corporations. These are enterprises owned and controlled by the government to provide essential goods and services such as electricity, water, transportation, and petroleum. Since private investors may not be interested in providing these services due to low profits or high risks, the government steps in to ensure the public has access. For example, the Nigerian Railway Corporation provides rail transport services across the country.
• Providing Infrastructure: The government also participates in the economy by providing basic facilities that support production and trade. Infrastructure such as roads, bridges, schools, hospitals, power supply, and communication networks are necessary for businesses to operate efficiently. By investing in these facilities, the government creates an enabling environment for private businesses to thrive and for citizens to enjoy a better standard of living. Without good infrastructure, the economy would find it difficult to grow.
• Regulating Businesses and Industries: Governments regulate business activities by making and enforcing laws that guide how businesses should operate. For instance, laws on consumer protection, labor rights, minimum wage, environmental protection, and product safety ensure that businesses operate fairly and responsibly. This regulation prevents exploitation of workers and consumers while also protecting the environment. Through such control, the government maintains order and balances the interests of producers and consumers in the economy.
• Taxation to Raise Revenue: Taxation is another major way the government takes part in the economy. By imposing taxes on individuals and businesses, the government raises revenue which is used to finance public services like education, healthcare, security, and infrastructure. Taxes also help to redistribute wealth and reduce inequality in society. In addition, the government can use taxes to discourage harmful practices, such as high taxes on tobacco and alcohol to reduce consumption.
• Subsidizing Industries to Encourage Growth: Sometimes the government provides subsidies to certain industries in order to make goods and services cheaper and more accessible to the public. Subsidies may come in the form of grants, tax relief, or direct financial support. For example, the government may subsidize agriculture to ensure food security or subsidize petroleum products to make transportation affordable. Subsidies help reduce production costs and encourage more businesses to invest in key sectors of the economy.
• Trade Restrictions (Tariffs and Quotas): The government also influences economic activities by imposing tariffs (taxes on imports) and quotas (limits on the quantity of goods imported). These trade restrictions protect local industries from foreign competition and encourage citizens to buy locally made goods. For instance, tariffs on imported rice in Nigeria encourage more people to buy Nigerian rice, which supports local farmers. Trade policies like these are important for developing domestic industries and saving foreign exchange.
• Direct Participation in International Trade: Finally, governments themselves may engage in international trade by exporting or importing goods and services. They may export items such as crude oil, cocoa, and minerals, or import essential goods like machinery, medical supplies, and refined petroleum products. Through trade agreements and negotiations, governments also secure favorable terms for their country. Direct participation in trade allows the government to earn foreign exchange and strengthen the nation’s balance of payments.

Advantages of Government Ownership of Public Corporations

• Ensures provision of essential services for all citizens: One major advantage of government ownership is that it makes sure important services like electricity, water, transportation, and healthcare are available to everyone, not just to those who can afford them. Private businesses may ignore these services if they are not profitable, but the government steps in to guarantee that the basic needs of citizens are met. This helps to improve the quality of life for people in both urban and rural areas.
• Prevents exploitation by private businesses: If essential services are left in the hands of private companies, they may exploit citizens by charging very high prices to maximize profit. For example, if only private companies controlled electricity, they might make it too expensive for ordinary people. Government ownership prevents such exploitation by ensuring that prices remain fair and affordable, and that the public interest comes before profit.
• Encourages rapid industrial development: Government-owned corporations can support industrial growth by providing the necessary infrastructure and services that industries rely on. For instance, industries need steady electricity, transport systems, and communication networks to function effectively. Since the government may not prioritize profit, it can invest heavily in these sectors to stimulate overall economic growth and encourage private businesses to thrive.
• Helps in achieving national security and control of strategic sectors: Some sectors, such as oil, gas, defense, and power, are too important to leave entirely in the hands of private investors. If foreign or private interests control them, the nation’s security could be threatened. Government ownership ensures that the country maintains control over these strategic industries, thereby safeguarding national interests and protecting resources from foreign domination or misuse.
• Provides employment opportunities: Public corporations usually employ a large number of workers, both skilled and unskilled, thereby reducing unemployment in the country. Since the government is not primarily focused on profit, it often retains more workers than private companies would, which helps to provide stable jobs. These employment opportunities also support families and contribute to reducing poverty levels in society.

Disadvantages of Government Ownership of Public Corporations

• Wastage of Public Funds: Public corporations are often financed with taxpayers’ money, but poor supervision and lack of profit motivation can lead to careless spending. Unlike private businesses that must be efficient to survive, government-owned corporations may continue running even when they are making losses. This results in unnecessary expenses, duplication of efforts, and wastage of scarce national resources.
• Political Interference: Because public corporations are controlled by the government, politicians often interfere in their management. Appointments to leadership positions may be based on political loyalty rather than competence. Policies and decisions can also change whenever there is a new government, making long-term planning difficult. This reduces efficiency and discourages professional management practices.
• Low Productivity due to Lack of Competition: Since many public corporations operate as monopolies, they face little or no competition from private firms. Without competition, workers and managers may not be motivated to improve services or reduce costs. As a result, productivity is usually low, and the quality of goods and services may decline. Customers may suffer from delays, inefficiency, and poor service delivery.
• Corruption and Mismanagement: Public corporations are vulnerable to corruption because of weak accountability systems. Funds meant for operations or development projects are sometimes embezzled by officials. Mismanagement also occurs when incompetent individuals are placed in charge of important responsibilities. This leads to frequent breakdowns of facilities, poor service delivery, and loss of public trust.
• Dependence on Government Subsidies: Many public corporations cannot generate enough income to cover their running costs. They rely heavily on government subsidies to survive. This places a heavy burden on national finances, as the government must divert funds that could be used for schools, hospitals, or roads to support struggling corporations. Over-dependence on subsidies makes them unsustainable in the long run.

Final Thoughts

• Governments set them up to provide vital services, control monopolies, handle large projects, and develop the economy.
• The government gets involved by creating corporations, regulating businesses, providing infrastructure, taxing, subsidizing industries, and engaging in trade.
• It ensures national security, prevents exploitation, provides jobs, and makes essential services available to all.
• It can lead to waste of funds, poor performance, corruption, and dependence on subsidies.

Tags

Social welfare, Strategic industries, Infrastructure, Taxation, Trade restrictions, National security

Read also: Reasons for Government Ownership of Enterprises