State Enterprise: Definition, Objectives, Why State Enterprises are Successful

A government-owned corporation, state enterprise, or government business enterprise is a legal entity created by a government to undertake commercial activities on behalf of an owner government. It is usually considered to be an element or part of the state.

What is State Enterprise?

State ownership, also called public ownership, government ownership or state property, are property interests that are vested in the state, rather than an individual or communities.

The process of bringing an asset into public ownership is called nationalization.

In primarily market-based economies, government-owned assets are often managed and run like joint-stock corporations with the government owning a controlling stake of the shares this model is often referred to as a state-owned enterprise.

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.

Governments may also use profitable entities they own to support the general budget state-owned enterprises that may or may not be expected to operate in a broadly commercial manner and may or may not have monopolies in their areas of activity.

The creation of a government-owned corporation from other forms of government ownership may be a precursor to privatization.

Durgadas Bhattacharjee defined; “The State Enterprise refers to those business units which are partly or wholly-owned and controlled by the government.”

Prof. Hanson said, “State enterprise is the operation of commercial or industrial undertaking by the state.”

“Public enterprise is an undertaking that is owned by a national state or local government, supplies services or goods at a price, and is operated on a more or less self-supporting basis.”

Thus to ensure the welfare of the citizen of a country, the state or government takes commercial endeavor, which is commonly termed as public enterprise or state enterprise or corporation.

State enterprise has emerged for the following reasons:

1. Integration of state system,
2. The emergence of colonialism,
3. Industrial revolution,
4. Laissez fair policy,
5. Creation of labor movement,
6. Socialistic movement,
7. The emergence of a mixed economic system.

The basic elements of the historical background of state enterprise are given below:

1. Integration of social system

A social system is a characteristic network of interdependent human patterns, relationships, structures, stories, practices, and institutions that shape the lives and consciousness of the people in a society.

State enterprises can integrate the social system by giving different kinds of opportunities.

2. Emergence of Colonialism

Colonialism means a policy by which a nation maintains or extends its control over foreign dependencies. Colonialism comprises unequal relationships between metropolis and colony and between colonists and the indigenous population.

3. Industrial Revolution

The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, and transport had a profound effect on the socio-economic and cultural conditions starting in the United Kingdom, and then subsequently spreading throughout Europe, North America, and eventually the world.

The onset of the Industrial Revolution marked a major turning point in human history. Almost every aspect of daily life was eventually influenced in some way.

4. Laissez Fair Policy

It means allowing the industry to be free from state intervention, especially restrictions in the form of tariffs and government monopolies.

A social system consists of two or more individuals interacting directly or indirectly in a bounded situation. The government does not give any barrier to run business.

5. Creation of Labor Movement

The term labor movement is a broad term for the development of a collective organization of working people, to campaign in their interest for better treatment from their employers and governments.

In particular, through the implementation of specific laws governing labor relations, trade unions are collective organizations within societies.

Many ruling class individuals and political groups may also be active in a part of the labor movement. To ensure this right government enterprise is involved.

6. Socialist movement

Social Movement is meant an autonomous and self- conscious movement of people united by the support of some ideal, rather than by the pursuit of the material self-interest of its members (though material interests are generally not too far under the surface).

So it realizable that government firms will rise for socialistic movement. Here State enterprise can do a great job.

7. The emergence of Mixed Economic System

A mixed economy is an economic system that includes a variety of private and government control, or a mixture of capitalism and socialism.

This usually means an economy that contains both private-owned and state-owned enterprises or that combines elements of capitalism and socialism, or a mix of market economy and planned economy characteristics.

In a mixed economy system, state enterprise is more preferable than any other enterprise.

Objectives of State Enterprises

The fundamental objectives of the state enterprises are to serve the people and help in developing a state of industrialization in the country.

The following are some of the pivotal objectives of the state enterprises:

1. Check the formation of monopolies.
2. Facilitate industrial development.
3. Public welfare.
4. Provide necessities.
5. Create employment opportunities.
6. Channelizing of public savings.
7. Avoid the concentration of economic power.
8. The exploitation of natural resources.
9. Production in a sensitive area.
10. Increase in revenue.

1. To check the formation of monopolies.

When business is left in the hands of private individuals, it will develop a monopolistic position in certain fields.

To have checked on the growth of monopoly, the government has taken an active part in commercial undertakings through public enterprises.

2. Facilitate all-round industrial development

Private entrepreneurs invest in those projects which are profitable, but the government wants to develop all types of industries irrespective of profit.

Besides, some industries are necessary where private investors are reluctant to invest. These public enterprises make an all-round development in the country.

3. Public welfare

The establishment of public enterprises leads to public welfare because the government enters into the business field with prime consideration of rendering services.

The government will take a less profitable business, and thereby, it increases public welfare.

4. To Provide Necessities

Public enterprises (like Titas Gas, Desco) undertake to provide various necessaries like electricity, coal, and gas to the people. The pivotal objective is not to provide these necessities but provide them at a cheaper rate.

Private sectors are not allowed to take up business in those fields because of the chance of more exploitation.

5. Create employment opportunities

The establishment of public enterprises creates employment opportunities in the country and solve the state of the unemployment situation effectively.

6. Channelizing of public savings

Public enterprises help in channelizing public saving to better profitable investments. The process of development requires a huge amount of investment, and this huge investment necessitates the need for public savings.

Most of the public savings are being available through nationalized banks and financial institutions.

7. Avoid the concentration of economic power.

When private sectors are given a free hand, they will lead to getting more profit by exploiting the people. This will lead to the concentration of economic power in the hands of a few persons.

This state of business is removed by the creation of state enterprises. Besides this, public enterprises lead to balanced economic growth by undertaking business projects in all fields.

8. The exploitation of natural resources

Public enterprises are necessary for the effective exploitation of natural resources when private sectors do not intend to have risk capital in the exploitation of natural resources.

Petrobangla spends a lot of money through BAPEX on the exploitation of natural resources.

9. To carry the production in certain sensitive areas.

There are certain areas where the production is to be undertaken with great precaution and secrecy.

In those areas, public enterprises provide a great deal of the production of defense types of equipment is exclusively undertaken by public enterprises because of the above reasons.

10. Increase in government revenue

Since most of the state enterprises are undertaken on commercial lines, its surplus can provide substantial revenue to the government.

The enterprises which are running at a profit provide a major part of the revenue of the government and helps in the preparation of a budget.

Characteristics of State Enterprise

The main characteristics of public enterprises are;

1. Autonomous or semi-autonomous organization

Public enterprise is an autonomous or semi-autonomous organization because some enterprises work under the direct control of the government, and some organizations are established under statutes and companies act.

2. State control

The public enterprises are financed, owned, and managed by the government may be a central or state government.

3. Rendering service

The primary objective of the establishment of public enterprises is to serve the public at large by supplying the essential goods at a reasonable price and creating employment opportunities.

4. Useful to various sectors

The state enterprises serve all sectors of the people of the company. They do not serve a particular section of the people in the community.

5. Monopoly Enterprises

In some specific cases, private sectors are not allowed, and as such, the public enterprise s enjoy a monopoly in operation. The state enterprises enjoy a monopoly in Railways, Postal services, and Energy production.

6. A direct channel for the use of foreign money

Sometimes the government receives foreign assistance from industrially advanced countries for the development of industries.

These advances received are spent through public enterprises.

7. Public accountability

The state enterprises are liable to the general public for their performances because they are responsible for the nation.

8. Agent for implementing government plans

The public enterprises run as per the whims of the government, and as such, the economic policies and plans of the government are implemented through public enterprises.

9. Financial Independence

Though investment in government undertaking is made by the government, they become financially independent by arranging finance for day-to-day operations.

Difference Between Private and Public Sector Enterprises

In the earlier lessons, you have studied the various forms of business organizations existing under private ownership or in the private sector.

By the private sector, we mean, economic and social activities undertaken privately by a single individual or group of individuals.

They prefer to do business in the private sector basically to earn a profit.

On the other hand, the public sector refers to economic and social activities undertaken by public authorities. The enterprises in the public sector are set up with the main aim of protecting the public interest. Profit earning comes next.

Besides the difference in the objective, the enterprises in both these sectors also differ in many other aspects. In this section, let us know the differences between the enterprises of the public sector and the private sector.

Basis of differencePrivate sector enterprisesPublic sector enterprisesObjectiveMaximization of profit.Maximize social welfare and ensure balanced economic development.OwnershipOwned by individuals.Owned by Government.ManagementManaged by owner and professional managers.Managed by Government.CapitalRaised by owners through loans, private sources, and public issues.Raised from Government funds and sometimes through public issues.Area of operationOperates in all areas with an adequate return on investment.Operates in basic and public utility sectors.

Why are State Enterprises Successful? – Success factors or Cause of growth of state enterprise

The major causes of the growth of state or business ownership are indicated as below:

1. Heavy expenditure

Many investors hesitate to invest their capital where heavy expenditure is required, but the return is not so short.

On the other side, the government spends a large sum of money on such projects without any profit motive.

2. Public utility services

Government contracts over some enterprises to provide utility services to the public.

All corporations, municipalities, and district councils are supervised by the government, which renders valuable services in providing public amenities.

3. National interest

State intervention is also required for the national interest. It is always considered most essential to protect defense and other key industries in every case.

4. Establishment of monopoly

The government undertakes some enterprises to hold strict control over them Railway, Electric, and Water supply, Communication, etc. are directly managed by the government for the public interest.

5. Promotion of welfare

This is a major motive behind the growth of state ownership that govt, wants to achieve rapid economic development to promote the welfare of the public.

6. Balanced development

Government control over certain industries to give equal importance to all the region s of the country.

Some enterprises are started in undeveloped areas of the country to reduce of goods and their prices.

7. Protection of consumer

This is required to ensure that there is no exploitation of consumers by monopoly powers.

State ownership is, therefore, desired to protect the consumer from selfish hands to regulate the supply of goods and its prices.

8. Maximum utilization of sources

Certain national sources cannot be utilized to the maximum but by the government.

Oil, Gases, minerals, and Sea resources are allocated options for the best interest of the public.

9. Centralized management

Various departments and enterprise s are controlled by the govt because centralized management is required for the object of coordinating and saving in the expenses of management.

Different forms of public sector enterprises

There are three different forms of organization used for public sector enterprises. These are

1. Departmental Undertaking;
2. Statutory (or Public) Corporation, and
3. Government Company.

Departmental Undertaking

Departmental Undertaking form of organization is primarily used for the provision of essential services such as railways, postal services, broadcasting, etc.

Such organizations function under the overall control of a ministry of the government and are financed and controlled in the same way as any other government department.

This form is considered suitable for activities where the government desires to have control over them, given the public interest.

Statutory Corporation

Statutory Corporation (or public corporation) refers to a corporate body created by the Parliament or State Legislature by a special Act that defines its powers, functions, and pattern of management.

Statutory Corporation is also known as a public corporation. Its capital is wholly provided by the government.

Government Company

Government Company refers to the company in which 51 percent or more of the paid-up capital is held by the government. It is registered under the Companies Act and is fully governed by the provisions of the act.

Most business units owned and managed by the government fall into this category.