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Public ownership

From Academic Kids

Public ownership (also called government ownership or state ownership) is government ownership of any asset, industry, or corporation at any level, national, regional or local (municipal). The process of bringing an asset into public ownership is called nationalization or municipalization.

A government owned corporation (sometimes state-owned enterprise, SOE) may resemble a not-for-profit corporation as it may not be required to generate a profit; although governments may also use profitable entities they own to support the general budget. SOE's may or may not be expected to operate in a broadly commercial manner and may or may not have to face competitive tendering. The creation of a government-owned corporation (corporatization) from other forms of government ownership may be a precursor to privatization.

Contents

Arguments for and against

See also: arguments for and against privatization and the welfare state

For

  • Public services. Some services, such as defence, cannot be provided by the private sector directly - only a government system of taxation can finance them. Others (merit goods), such as education, can be under-provided by the private sector (according to social standards concerning access to them).
  • Essential services. In the case of an essential service - particularly one on which lives may depend - nationalisation may ensure the continuation of this service regardless of commercial or environmental pressure (saving lives is not always profitable). Furthermore, there may be externalities which mean it is in the interests of all to ensure a good service is available to everyone, even beyond moral concerns.
  • Efficiency. In natural monopolies, competition is wasteful, and will tend to be eliminated by competitive forces (leading to a private monopoly or oligopoly). A public sector monopoly can be held to account via democratically-elected governments, in a way in which a private monopoly cannot. (A private monopoly may be subject to regulation, but this may be an inefficient way of securing the public interest.)
  • Accountability. As mentioned above, while a governmental monopoly is nonetheless still a monopoly, it is answerable to the electorate rather than a small group of shareholders. (e.g. if the telephone service is nationalised, voters can bring pressure onto the government to provide better services, and parliament may have the power to sack anyone responsible for a reduction in the quality of service).
  • Consumer interests. Public ownership can protect consumer interests in sectors where competition is low, where choices are important but made infrequently, and/or where consumers do not have the expertise to make good decisions (such as in health care).
  • Common good. A profitable nationalised industry contributes with its profits directly to the common wealth of the whole country, rather than to the wealth of a subset of its population.
  • Financial security. Public sector institutions have access to finance at government interest rates, which are (almost) always lower than even the most financially secure private sector firms, because the government cannot go bankrupt, which means less risk to the lender.
  • Work ethic. Employees may be more inclined to view their work positively if it is directed by a management appointed by a government that they have a say in electing, rather than a management representing a shareholding minority. This is expressed in the idea of a public service ethos which makes public sector workers work harder than they would for a private employer.
  • Equity. Public ownership can help prevent extreme imbalances of wealth.

Against

  • Waste. Government ownership may lead to waste (x-ineffiency) if it proves unable to motivate management and personnel through appropriate incentives, including appropriate pay and threat of redundancy.
  • Consumer choice. Public ownership in an industry which could be competitive in private hands may stifle innovation if proper incentives are not provided by the government. Consumer choice may be reduced and there may be no alternative sources - and no catalysts for alternative sources - of goods or services that better meet consumer preferences.
  • Misinvestment/over-investment. Public ownership of profitable services may lead to "gold-plating" (over-investment in assets) if decisions are driven by engineering ideals and not efficiency concerns.
  • Unprofitable companies survive. Public ownership of a loss-making service or industry (such as flu vaccines) may inhibit the changes needed to ensure long-term profitability (or permit bankruptcy). This may mean subsidising unnecessary losses indefinitely.
  • Misallocations of labor and money. The government may be inefficient in running production, trading, or service operations, in the sense of causing misallocations of labor and capital, with consequent reductions in the standard of living and economic growth.
  • Accountability. Accountability to the market may be eliminated, and accountability through government may be an insufficient replacement, particularly if an industry or service does not have a high public profile or if the government is not democratic.
  • Influenced by politics. Decision-making in the public sector may be prone to interference from politicians for political or populist reasons. The industry may be over-staffed in order to reduce unemployment; it may be forced to conduct transactions or actions in certain areas in order to win local votes; it may be forced to manipulate its prices in order to control inflation. Of course, some of these measures may be considered positive rather than negative, but if they are not taken properly, in the long run they are likely to be an inefficient way to meet the desired goals.

See also

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