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What is

Public Enterprise?


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Legal Definition: The most common definition (legal) is

to suggest that the PUBLIC Corporationis an organization that the governmentowns.


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Functional Definition:The criteria used is the following :

a majority of its ownership must be vested in

government management of its affairs must be relatively

independent from government


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Characteristics of publicC

orporations Engage in business transactions.

Has a legal identity.

Limited liability.

Can initiate or be the object of legalaction.

Semi-independent board of directors. One shareholder (the government).

Management structure similar to privatesector.


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Problems of Public Enterprise Proliferation of new corporations and

subsidiaries

Inefficiency of public corporations

Unfair competition with the private sector

Increasing financial power of publiccorporations

Problems of accountability Accountability to whom

Problems of mandate and reporting

Proposal for reform: privatization


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Privatization


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The transfer of public assets, operations oractivities to private enterprise.

Margaret Thatcher once remarked: The publiccontrols the private sector, but nobodycontrols the public sector.

Private firms need their customers in order to

survive state industries do not. Financed through taxation, state operations

are largely independent of consumer choices.

What is Privatization?


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What is Privatization? Undoing of public enterprise

Why Privatize?What are the economic & social market failures?

To reduce government involvement incommercially viable activities

Increase efficiency in the delivery of goods,and services

What is Privatization?


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Sell the whole operation by public share issue

First sell part (51%) of the operation bypublic share issue and the balance later

Sell all or parts of the operation to privatesector buyers

Sell the operation to the workforce Give the operation to the workforce

Contract out the service to the private sector

Main Methods ofPrivatization


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Liquidation: government sale of astate-owned firm to the private sector

Part Liquidation

Whole Liquidation

Subsidization: govt provision of grantsto non-profit organization for publicservice

Consumer groups, Environmental groups

Types of Privatization


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Franchising: to a private company

exclusively to provide a region with acertain service

Monopoly rights

Contracting out: govt retention of

responsibility but hiring a privatecontractor

Types of Privatization


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Ideology

Accountability Efficiency

Financing

Whats DrivingP

rivatization?


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Privatization

Benefits of Privatization:

Economic Benefits: One-time cash injection to get revenues Competitive imperative

Market capitalization

Social Benefits: Commercial control over enterprise (more

disclosure)

Private dividend more public money for goods,and services


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To Government:

Reduces the operating costs of government Raises proceeds to reduce the debt

Reduces future calls on governmentexpenditure

Turns losses into tax revenues

Reduces lobbying pressures on politicians

Advantages of Privatization


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To the Private Sector:

Stimulates development of privateenterprises

Helps create a competitive environmentwhich in turn increases efficiencies andreduces costs

Could provide a basis for an exportindustry

Advantages of Privatization


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Costs of Privatization:

Economic Costs: Loss of annual government revenue

Social Costs:

Loss ofguaranteedjobs

Loss of government influence in market outcomes(Public Interest)

Loss of government control over provision ofpublic goods and services

P

rivatization


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Privatization

Conclusions:

A policy conundrum In good public, benefits exceed costs In bad public, costs exceed benefits

Yet,

Only good public enterprise is easy to privatize but

these public enterprises are successful and thusproviding substantial economic and social benefits

Bad public enterprise is hard to sell yet incurringsignificant economic and social costs


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Privatization

Finally

Although the trend in the past ten years wasgoing toward privatization ,but now with the

current financial crisis we can hear a lot ofvoices asking for the governmental supervision

specially in the finance , real state ,and infra

structure industries.


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References

International Information Network (Internet)


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Privatization

Thank You !!

Work Group

Shireen Safwat

Mohamed Khalil Abdel-Hakam

Salah El-Sayed Abdel-Mottaleb

Hussein Abdel-Fattah

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