Public Sector Businesses (Cambridge (CIE) O Level Business Studies): Revision Note

The Public Sector

• The public sector is a key element of mixed economies

• Public sector firms are owned and controlled by the government and are usually funded through taxation

• Their main goal is to provide services such as education, healthcare or emergency services that may not be provided by profit-focused businesses

• Public sector firms operate on a local, regional or national government level

  • Transport for London provides local transport in the London region

  • Caribbean Airlines operates across several countries in the Caribbean, with ownership shared by the governments of Trinidad and Tobago, Jamaica and Guyana

  • Comboios de Portugal provides train services across the country and in to Spain

•  Governments are likely to retain ownership of organisations in the public sector for several reasons

  • They are strategically important to the country, such as the defence or justice systems

  • They provide essential services such as water, electricity supply or emergency services

  • They are merit goods that may not be provided in sufficient quantities by private businesses, such as education or health services

Public Corporations

• Public corporations are owned by the government

  • They are usually businesses which were once owned by private individuals and have been nationalised

    • In 2022, the German government nationalised Uniper, the country's largest importer of gas, to improve energy security as a result of the conflict between Russia and Ukraine

    • In 2008, the UK government nationalised Northern Rock, a bank which was on the verge of collapse as a result of the global financial crisis

• Government ministers appoint a Board of Directors, which manages the corporation

  • They are expected to run the corporation according to objectives set by the government

  • Although they may be profitable, the aim of corporations is to provide a public service

  • Governments should not interfere with day-to-day operations and decisions of the corporation

Evaluation of Public Corporations

Other Public Sector Enterprises

• In some cases, profit-making companies are partly owned or controlled by the government

  • They sell shares on the publicly listed stock exchanges so they are a mix of the private and public sector

    • In the US, Amtrak (passenger trains) is a state-owned for-profit enterprise whose shares are majority owned by the federal government  

• Other businesses are funded by central and local government

  • They may still levy charges for some services 

    • The NHS is free at the point of use for British citizens, but they must pay for medical prescriptions, some procedures and parking on hospital premises

    • The French state funds leisure facilities such as swimming pools and public sports venues but usually charges users a small fee for their use

    • Due to the constraints of government spending in many countries, many services are now being privatised or suffer from insufficient funding