Public Enterprises Essay ⋆ Political Science Essay Examples ⋆ EssayEmpire

Public enterprise is used to describe specific corporate entities partially or wholly sponsored by the government. These enterprises may include governmental entities, such as public authorities or special purpose districts, which are distinguished from traditional government agencies by their corporate structure, fee-for-service funding model, or insulation from the traditional government bureaucracy and elected bodies. Entities that bear greater resemblance to traditional for-profit corporations are frequently labeled public enterprises, including state-owned enterprises (SOEs), which the state typically owns entirely or the government is a stakeholder.

There are, then, essentially two classes of public enterprises. Some public enterprises are government agencies adapted to look and function as for-profit companies. Others represent private firms blended with elements of government. The implications of the mixture—and the salient issues for political scientists—are different for the two classes of public enterprise.

Adopting Business Principles

The prospect of running a government as a business has been attractive for bureaucrats and government agencies for years. Promises of enhanced efficiency, reduced corruption, and lessened burden on the public purse have led to the creation of public enterprises to provide a vast array of services. Some of these include housing projects, transportation, infrastructure, medicine, and social services. As such, the most venerable and familiar form of public enterprise of this type is the public authority. As its name suggests, a public authority is endowed with many powers of a state agency and typically charged with building, maintaining, and operating a public facility or infrastructure project, such as a bridge, power plant, or airport. A key feature of a public authority—one that is not common to all public enterprises—is the ability to borrow independently. Typically, public authority issues bonds backed by the expected revenues to be earned, as the public authority charges users or local municipalities for the amenities they provide. For example, a transit authority sells bonds and repays debt holders with the fares paid by riders.

This arrangement transfers the cost of providing the public good to users of the public good. In some cases, however, government agencies pay the user fees out of general revenue. The perpetual concern with public authorities is their seeming alienation from government or public control or oversight. Often, the concern is elected executives who use public authorities to evade the control of legislatures. Most famously, twentieth-century New York urban planner, Robert Moses, used his dominion over a passel of public authorities to transform the infrastructure of New York. At the U.S. federal level, the Tennessee Valley Authority—established in 1933 to create public works programs in the Midwest and the South to supply jobs—is often criticized for its alleged immunity to political control or government oversight.

Placing Business First And Government Second

There are two forms of government agencies performing as business entities, referred to as government corporations or government-sponsored enterprises. The label government corporation should be nearly synonymous with public enterprise, but this is hardly the case. Rather, many government corporations resemble public authorities with the notable difference they do not borrow through the government. They are run on a fee-for-service basis and generally are self-sustaining, as they carry out activities as varied as generating electricity, financing mortgages, and operating railroads.

With government-sponsored enterprises (GSEs), although their origins are the same as government agencies, GSEs are public enterprises that move to the business-with-government features spectrum of public enterprises. These are traded companies, which historically returned significant profit to shareholders, compensated their executives in line with finance industry norms, and functioned largely beyond governmental control. Government agencies regulate GSEs to monitor financial safety and soundness as well as to achieve public mission. In return, GSEs enjoy several advantages; most notably, the implicit guarantee on their debt reduces their borrowing costs.

In 2009, GSEs entered the public consciousness when Fannie Mae and Freddie Mac, two massive housing finance companies, crumbled. Their collapse prompted a remarkable federal intervention. The failure of Fannie Mae and Freddie Mac underscored a central public concern with many public enterprises: the public takes a great deal of risk with such organizations and yet does not reap the rewards, albeit financially or enhanced delivery of public goods.

The significant 2009 American investment in private firms—including General Motors; the international insurance giant, American International Group (AIG); and the international financial conglomerate, Citigroup—reintroduced the types of public enterprises in the United States generally associated with socialist regimes. State-owned enterprises (SOEs), or firms in which governmental agencies hold a significant stake, are well-known throughout the world. Nowhere is concern for the future of state-owned enterprises greater than in China, the largest socialist regime in modern history.

The fear surrounding SOEs is that government participation interferes with the businesses’ ability to prosper, with policy imperatives given precedence over profit-driven considerations. In some cases, the public purpose of a SOE is quite explicit, but often corporate executives are under pressure to pursue nonfinancial objectives at the state’s behest. There is a related concern that state-owned enterprises quash competition because they are favored over their private competitors. Generally, the concerns associated with SOEs are contrary to the commonly held misgivings regarding government corporations, public authorities, and other government-as-business enterprises, such as lack of state oversight and involvement.

For public enterprises emerging from the business end of the spectrum, then, the public mission of the entity is less certain. In some situations, government participation is seen to connote a corresponding public role, but in other contexts, state-owned enterprises are regarded as businesses that happen to have governmental ownership. More often than not—and this is the case with the government intervention prompted by the financial crisis—there is tremendous ambiguity on this critical point.

Bibliography:

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