In Module 2 we saw that there is no single correct way to measure the size of the public sector. Similarly, definitions of public enterprise can vary between countries and change over time. The United Nations definition of a public enterprise is ‘an incorporated or large unincorporated enterprise in which public authorities hold a majority of the shares and/or can exercise control over management decisions’. Some of the problems with this approach are reviewed in the following three sub-sections.
A loose definition of a public enterprise might be ‘an enterprise which is controlled by the government’. However, such a definition raises problems of interpretation in specific cases. For example, how can we be sure that the government ‘controls’ a particular firm? It is the essence of our entire approach to government-industry relationships that one party can rarely be said to ‘control’ the other in a mechanical way. Does ‘the government’ mean just the central government or does it include local government? For example, statistical information from some countries excludes enterprises run by local governments.
The British Broadcasting Corporation is a public corporation in the UK and was established in 1926. Historically the use of this form of enterprise was supposed to permit a large degree of independence from detailed government intervention. The enterprise has public service obligations but its directors were supposed to fulfil these without becoming simply extensions of the established state bureaucracy. Certainly a definition of the public enterprise sector based on the idea of ‘government control’ would make it difficult to classify organisations such as the BBC.
Local or regional government can be important in federal systems. In Australia the size of the public enterprise sector depends crucially on whether regional or local enterprises are included (see Table 8.1).
The legal right to appoint and dismiss directors and the right to receive the profits from the operations of an enterprise are important factors which can be used to establish a definition of public enterprise. Where, for example, (i) an enterprise is established as a corporation with no privately exchangeable rights to the profits, and (ii) where directors are appointed by the government, the enterprise is clearly in the public sector.
Even with the property rights approach, however, difficulties are encountered. A limited company with 100 per cent of the shares owned by the government would be one in which the government would have the power to appoint directors and in which no private individual would receive a share in the profit. It would be virtually the same as a public corporation apart from the fact that the simple sale of shares by the government would be sufficient to transform it into a normal ‘private sector’ company. The sale of less than 50 per cent of the shares would still give the government the power to appoint the directors of the company, although the existence of private shareholders would contravene condition (i) above. Even the sale of more than 50 per cent of the shares might still put the government in a sufficiently dominant position to influence corporate policy. Thus, in practice, there is a spectrum of types of enterprise, ranging from the ‘purely public’ corporation to the ‘purely private’ corporation in which the government has no equity stake. In between are ‘mixed enterprises’ of different varieties.
The British Government for many years held a majority share in British Petroleum plc although this company was not regarded as part of the public enterprise sector. Nevertheless, the proceeds from the sale of these shares (which occurred during the 1980s) are listed under ‘ privatisation proceeds’ in reports of the government's expenditure plans, along with receipts from the sale of shares in other erstwhile public enterprises.
The absence of private rights to profits and the power of the government to appoint directors are conditions which are compatible with a wide range of institutional forms. For example a bureaucracy supplying a social service such as health or education might well satisfy these criteria. The distinction that we have used between a bureaucracy and a public enterprise is that the bureau produces output which is not marketed (see Module 7) whereas a public enterprise receives most of its revenue from the sale of its products. Once again, these distinctions produce difficulties of interpretation in intermediate cases. Public enterprises may receive subsidies from the government if these are required in the interests of wider social objectives, and may offer their services at a low or zero price to certain classes of consumer (for example, cheap rail travel for retired people). Conversely, educational institutions which are otherwise free to the user may at the margin charge fees for certain services (for example, for music tuition or school trips).
Changes in definitions can be important to international comparisons of the public enterprise sector. In France, before 1974, figures in the national accounts relating to public enterprises included public hospitals. Later in the 1970s conventions changed and French figures related to eight large monopoly enterprises only. Some countries exclude banks and insurance companies or include only non-financial companies. In the UK the Post Office was a government department before 1961 although telephone and letter delivery services were priced and sold in the market. It is now the Post Office Corporation, having been separated from the telecommunications side of the business in 1981 with the creation of British Telecom (since sold to the private sector). Since 1991, the newly established National Health Service Trusts have been included in the ‘public corporation’ sector, thus contributing to a rise in employment in that sector from 742 000 in 1991 to 1 203 000 in 1993. Employment in the ‘nationalised industries’ was 400 000 in 1993 and thus comprised only one-third of employment in the ‘public corporations’ sector.
