Public enterprise is government or state- owned business organization which is set up by Act of Parliament with the aim of maximizing public welfare. Examples in Nigeria are Federal Radio Corporation (FRCN), Nigerian Ports Authority (NPA) etc.
FEATURES OF PUBLIC ENTERPRISES
1) They are owned by the government and setup by Act of Parliament or Legislation.
2) Government provides the capital for setting them up. Such capital could be raised from taxation, loan from the capital market.
3) The purpose for establishing public enterprises is welfare maximization.
4) The risk of liability of the company is borne by the government or tax payers who provided the capital for running the business.
5) The company is managed by Board of Directors appointed by the government.
6) Public enterprise is a legal entity or a corporate body that can sue and be sued to a court of law.
7) Government subsidizes it products or services for the general public to afford it.
MERITS OF PUBLIC ENTERPRISES
1) Development of Less Developed Areas: Public enterprises do not discriminate in provision of its services or goods. They ensure that areas of the economy that are less developed are equally catered for.
2) Public Welfare: Welfare of the citizens is paramount in establishing public enterprises. It helps to cater for public welfare.
3) Development of Basic & Heavy Industries: Private companies do not have incentives to invest in sectors that have a long gestation period like electricity and railway. As such, public enterprise assists in bridging the gap.
4) Reasonable Price: Public enterprise generally charge low prices to ensure that common man can afford it services and products. Even in some instances it products are subsidized to keep their price low.
5) Economic & Social Equality: State enterprises help in bringing equality between the rich and the poor. It does not discriminate in provision f it services.
6) End of Industrial Profit: Public enterprises are anti capitalist. Whatever profit that is made does not go into private pockets. Rather it goes back to the government for reinvestment.
7) Employment Opportunities: Public enterprises generate employment opportunities for majority of job seekers thereby keeping unemployment level low.
8) Research & Development: Public enterprise has adequate resources for Research and Development. R & D is important for the development of new techniques of production and new products.
DEMERITS OF PUBLIC ENTERPRISE
1) Lack of Incentives: Government employees do not have incentives to do their job compared to employees of private companies. Promotion in public enterprise is based on seniority and not merit.
2) Wasteful Expenditure: Government funds and properties are used carelessly which results in little gains at a greater cost. This increases the cost of production unnecessarily.
3) Corruption: Corruption, bribery and dishonesty are rampant in public enterprises. These have a negative impact on the enterprise.
4) Political Interference: Public enterprises suffer from political interference in the hands of politicians when hiring, transfer of staffs and awarding contracts. This creates a situation of a square peg in a round hole.
5) Red Tapism: Many decisions to be taken at different high levels results in file being locked- up without any reasons in the different offices for a long time.