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Lesson Note
Subject: Economics
Topic: Public Corporations and Co-operative Societies
Lesson Objectives: At the end of the lesson, learners should be able to;
i. Define a public corporation and give examples of public corporations
ii. State the features of public corporations
iii. List and explain the advantages and disadvantages of public corporations
iv. Give reasons why public corporations are established.
v. State the various ways government participates in economic activities
vi. State the problems associated with public corporations
vii. State the sources of finance to public corporations
viii. State the differences between public corporations and public limited liability company
ix. Explain a co-operative society
x. State the features of Co-operative society
xi. List and explain the types of Co-operative society
xii. State the advantages and disadvantages of Co-operative society
xiii. State the similarities and differences between Co-operative society and limited liablity company
xiv. Explain a joint venture
xv. State the sources of finance for business enterprises
xvi. State the problems associated with business enterprises
Discussions
Public corporation, also known as public enterprise or statutory corporation, may be defined as a large scale business organisation set up, owned and financed by the government of a country mainly to provide services to the members of the public. They are directly under the control of the government to cater for the welfare of the people.
Public Corporations are run by the government through the tax paid by the people. They are established by an act of Parliament or decree. The public corporation is controlled by board of directors, appointed by the government. They are not set up to make profit but to provide special services to the public.
Examples of public corporations in Nigeria include;
i. Nigerian Ports Authority (N.P.A)
ii. Nigerian Railway Corporation (N.R.C)
iii. Federal Radio Corporation of Nigeria (F.R.S.C)
iv. Nigerian National Petroleum Corporation (N.N.P.C)
v. Nigerian Telecommunications Limited (N.I.T.E.L)
Features or Characteristics of Public Corporation
i. Ownership: Public corporations are owned and financed by the government.
ii. Establishment: Public corporations are established either by decree or act of Parliament.
iii. Objective: They are established purposely to provide essential services to the generality of the people.
iv. Legal entity: It is a legal entity as it can sue and be sued in its own right.
v. Management: Public corporations are managed by board of directors who are appointed by government.
vi. Not profit oriented: Public corporations are not set up to make profit but to provide goods and services to the people.
vii. Monopolistic in nature: Some corporations are conferred with monopoly power by an act of Parliament or decree.
viii. High capital requirement: A public corporation requires large capital to set up, which cannot be provided by private individuals.
ix. Accountability: The management of public corporations (board of directors) are accountable to the government that set up the corporation.
x. Employees are public servants: Workers in public corporations are public servants and are treated as such.
Advantages of Public Corporations
i. Provision of infrastructural facilities: Public corporations provide infrastructural facilities, such as roads, schools, railway, electricity, to the populace.
ii. Availability of large capital: Since public enterprises are owned by government, there is always availability of sufficient capital to ensure expansion of the enterprises.
iii. There is continuity: Public corporations can last for a long period of time. In other words, there is perpetual existence.
iv. Development of capital projects: Establishment of public corporations can ensure the development of capital projects, e.g rural electrification.
v. Avoidance of exploitation of consumers: Public corporations are consumer – conscious as they ensure that the exploitation of consumers is greatly reduced.
vi. Creation of higher standards: The government enters into business in order to ensure higher standards, e.g provision of educational facilities.
vii. Accountability to the public: Public enterprises are accountable to the public because they have to submit their annual reports to the Parliament.
viii. Provision of employment opportunities: Public corporations provide employment opportunities for the teeming number of the unemployed.
Disadvantages of Public Corporations
i. Requires large capital: The cost of establishing a public corporation is very high, i.e large capital is involved.
ii. Government interference: Government can interference in the activities of public enterprises through the appointment of unqualified and incompetent people as board members.
iii. Inefficiency in operation: Lack of competition can bring about inefficiency in business operation.
iv. Danger of monopoly: Public corporations are monopolistic in nature, e.g N.E.P.A, hence it can abuse the privilege.
v. Corruption and mismanagement: Many public enterprises in Nigeria have become the major areas for embezzlement and mismanagement of the nation’s resources.
vi. Not profitable: Most public enterprises run at a loss because they are too large and complex to manage.
vii. Wastage: In public enterprises, waste are not usually discouraged because the belief is that the losses are borne by the tax payers.
viii. Lack of initiative: Lack of initiative is always exhibited in public enterprises as government functionaries must endorse the programmes and policies of the establishment.
Reasons for the Establishment of Public Corporations or Reasons for Government Participation or Ownership of Business Enterprises
i. Generation of revenue: Public corporations help the government to generate revenue needed to finance other government agencies.
ii. High Capital requirement: Public corporations usually require heavy capital outlay, which may not be affordable by private enterprises.
iii. To prevent foreign dominance of the economy: Government can venture into some enterprises in order to prevent or reduce foreign control of the economy by foreign investors.
iv. To provide infrastructural facilities: Government establishes certain enterprises to provide infrastructural facilities like roads and railways on which returns may not be forthcoming and which may, therefore, not attract investment by the private sector.
v. To prevent Monopolistic tendencies: Public corporations are set up to prevent monopolistic tendencies resulting in very high prices or charges if undertaken by private enterprises.
vi. To ensure even distribution of income: Government engages in some enterprises in order to ensure fair and even distribution so that income would not be concentrated in a few hands.
vii. Provision of essential services: Government engages itself in economic activities in order to provide essential services at subsidised rate, e.g water, electricity, etc.
viii. To promote economic development: Government also invests in some enterprises, e.g banking, insurance, etc, in order to have firm control over the economy and regulate it for developmental purposes.
Ways in which the Government Partcipates in Economic Activities
i. Establishment of financial institutions: Government participates in economic activities by establishing financial institutions to grant overdraft and loans to private and public enterprises, e.g Central Bank, Industrial Banks, etc.
ii. Establishment of public corporation: Public corporations are established by government to provide essential goods and services for the welfare of the people.
iii. Establishment of joint business ventures: Government, in conjunction with some private enterprises, can establish joint business outfit to provide goods and services for the people.
iv. Import monopoly: Government can also participate in economic activities by exercising monopoly over certain items of importation – a system in which government is the only agency that can import certain goods for economic reasons.
v. Enactment of appropriate laws: Government can also participate in economic activities by the enactment of appropriate laws which govern the smooth operation of certain business activities.
vi. Granting of tax holidays: Government can grant tax holidays to companies by way of attracting entrepreneurs to set up business.
vii. Provision of social amenities: For economic activities to thrive, government must provide social amenities like roads, electricity, water, telecommunications, etc.
Advantages of Government Ownership of Public Corporations
i. Provision of essential services: Government is involved in ownership of public corporations because of the provision of essential services, which it renders to the public.
ii. Creation of more employment opportunities: With the ownership of public corporations vested in the hands of the government, more employment opportunities are created.
iii. Prevention of exploitation and discrimination: Exploitation and discrimination association with private and public enterprises are prevented as a result of government ownership of enterprises.
iv. Protection of some strategic industries: Some strategic industries, e.g oil industry, airport, seaports, etc, are protected against foreign ownership and control.
v. Economic development: Government set up public corporations to enhance the economic development of the country.
vi. Higher standard of living: The provision of infrastructural and social amenities and services by public corporations, e.g water, roads, airport, electricity, etc helps to raise the standard of living of the people.
vii. Even distribution of services: With public corporations, certain services, e.g electricity, are evenly distributed to many parts of the country.
viii. Generation of revenue: Public corporations are set up sometimes to assist the government Gene running costs at least or self-sustaining revenue.
Disadvantages of Government Ownership of Public Corporations
i. Lack of choice by consumers: As a result of ownership of public corporations by government, which leads to monopoly, consumers are definitely their right to choose between alternatives.
ii. Frequent interference: Government officers always interfere in the activities of public corporations and this tends to lower their productivity.
iii. High level of corruption: There is a high level of corruption in public corporations because the workers and officials believe that government properties are nobody’s properties.
iv. Lack of qualified personnel: Inefficient and unqualified personnel are always employed to work in public corporations because such appointments are based on political considerations.
v. High level of inefficiency: The required efficiency that would ensure the making of profit in private enterprise is completely lacking in public corporations.
vi. Neglect of private sectors: Private sectors are sometimes neglected because the government tends to pay more attention to public corporations.
vii. Government instability: As a result of frequent changes of government, there is also frequent changes in boards of corporations, which do not ensure their effectiveness.
Specific Problems Associated with Public Corporations
i. Political Instability: As a result of frequent changes in government, there are also corresponding changes in the board of directors and officials and this does not encourage effectiveness and continuity in the management of public corporations.
ii. Frequent government interference: Government always interferes in the administration of public corporations and this results in poor performance of such corporations.
iii. Lack of qualified personnel: Inefficient and unqualified personnel are always employed to work in public corporations because such appointments are based on political rather than technical consideration.
iv. Negative attitude of workers: Majority of the workers in public corporations have a negative attitude to work because they regard public corporations as no-man’s job. Most of them will tell you that you “put government work on the shoulder and not on your head”.
v. High level of embezzlement: Public corporations are associated with high level of embezzlement on the part of board members who have to settle government officials that appointed them and this will eventually lead to financial bankruptcy of the corporation.
vi. Political Victimisation: Most board of directors and other important officials in public corporations are sometimes victimized due to certain political reasons and this makes such corporations ineffective.
vii. Practice of sectionalism and ethnicism: The practice whereby sectionalism and ethnicism are used to appoint board members and key officials to manage a public corporation normally leads to lawlessness and inefficiency.
Sources of Finance to Public Corporations
i. Loans and overdrafts: Public corporations can obtain loans and overdrafts from commercial or development banks.
ii. Internally generated revenue: Public corporations can also raise capital from revenue generated internally.
iii. Grant from government: Most of the fund available to public corporations are mainly from grants given by government.
iv. Grant from international financial institutions: Public corporations can also derive their fund from some international financial institutions such as the International Monetary Fund, African Development Bank, etc.
v. Grant from foreign countries: Foreign countries can also give grants or finance for the setting up or running of a public corporation as a special aid, e.g Britain, United States of America, Japan, etc.
Differences between Public Corporations and Public Limited Liability Company
i. Public corporations are owned by government while public limited liablity company are owned by shareholders.
ii. Public corporations are formed by Acts of Parliament or decree while public limited liablity company are formed by incorporation.
iii. Public corporations are controllee by government appointed board of directors while public limited liablity company are controlled by board of directors elected by the shareholders.
iv. Public corporations are financed by government and through grants while public limited liablity company are funded by shares and debentures.
v. The aim of public corporations is to provide essential services while the aim of public limited liability company is to make profit.
Co-operative Societies
A co-operative society is defined as a voluntary business organisation in which a group of individuals with common interest pool their resources together to promote the economic welfare of their members in production, distribution and consumption of goods and services.
Co-operative society is one of the oldest forms of business organisation. As far back as 1808, Robert Owen (1771 – 1858) established the first producer co-operative society in New Lonark, England. Also in 1844, Rochdole in collaboration with a group of twenty-eight weavers established a retail co-operative society. In Nigeria, the first producer co-operative society was established in 1922 by a group of cocoa farmers, their objectives was to get a reasonable price for their products.
Today, co-operative societies can be found in virtually all commercial activities. It has really contributed to the development of the Nigerian economy by increasing the standard of living of the people.
Features or Characteristics of Co-operative Society
i. Formation: Co-operative Societies are formed by two or more persons but there is no stipulated maximum number of persons.
ii. Ownership: Co-operative societies are owned by people with common interest. This makes ownership to be restricted as some conditions must be met before one becomes a member.
iii. Objective: The aim and objective of the society is to promote and advance the interest of their members, by rendering services to them.
iv. Management: The control and management of the society is vested in an elected committee whose members must be members of the society.
v. Capital: The capital is raised through voluntary contributions from the members.
vi. Perpetual Existence: There is continuity in Co-operative societies. Death or withdrawal of a member cannot bring the organization to an end.
vii. Registered as a limited liablity: The liablity is limited to the shares held by individual shareholders.
viii. Profit is shared based on patronage: Surplus (profit) for the year is shared among the members on the basis of their patronage during the year.
ix. Democratic in nature: The activities of co-operative society are democratic in nature. Each member is entitled to one vote, irrespective of the number of shares held.
Types of Co-operative Societies
i. Producers co-operative society: Producers co-operative society is formed by producers of similar products who organise co-operative production and undertake joint marketing of their products on wholesale or retail basis. They should useful information among members. The farmers, for example, can also purchase farm implements such as how’s, cutlasses, seeds, fertilizers, etc in large quantities and sell to members at reduced prices.
ii. Consumers co-operative society: Consumers co-operative society is owned and operated by a group of ultimate consumers who pool their resources together to purchase goods and services in large quantities and distribute them mainly to its members. The operating policies used are open membership, democratic control, limited interest paid on capital invested, proportionate dividend based on their level of purchase or patronage.
iii. Wholesale co-operative society: Wholesale co-operative society is formed by small scale wholesalers who purchase goods in bulk from the manufacturers at reasonable prices and sell I small quantities to retail co-operatives. They are able to raise large sums of money to finance wholesale purchases when they come together. As an entity, they have better bargaining power to purchase in bulk from the manufacturers.
iv. Retail – co-operative society: Retail co-operative society is a contractual organisation formed by many small and independent retailers. They pool their resources together to enable them buy in bulk and then sell their goods at lower prices to members who receive some form of patronage returns based on the amount of goods they purchased.
v. Credit and thrift society: Credit and thrift society is an organisation of low income earners who jointly pool large resources or fund together by contributing on a weekly or monthly basis. This type of society encourages saving habits among their members and grant loans to the members out of the accumulated fund. The loan attracts a low rate of interest. At the end of the year, surplus in the form of accrued profits are distributed to members as dividend. The members can also afford the opportunity of purchasing household needs like television, fridge, video camera, chairs, etc.
vi. Multipurpose co-operative society: Multipurpose co-operative society is a society formed by existing co-operative societies. Multipurpose co-operative societies undertake any form of co-operative activity that is profitable to the society. This association also serves as a protective body for its members. The society makes facilities used for co-operatives available for sharing among members. They also mediate in case of rift among members.
Advantages of Co-operative Society
i. Encouragement of savings: Co-operative societies encourage saving habits and their members.
ii. Financial assistance: They can mobilise funds needed for business investment and expansion and render financial assistance or give loans to members.
iii. Improve members’ standard of living: They improve the standard of living of their members by providing goods when they cannot buy on their own e.g electronics, land, etc.
iv. Loan facilities from banks or government: Co-operative societies can obtain loan easily from the bank e.g Co-operative Banks. They can also receive financial assistance from the government.
v. Democratic in nature: Each member of the society has equal say in the organisation. Members are entitled to one-man one-vote right, irrespective of shares held.
vi. Lower prices: Co-operative societies usually buy goods in bulk from the manufacturers at cheaper prices and this enables members to get these goods also at lower prices.
vii. Marketing of members’ products: They assist their members in marketing their products thereby ensuring fair prices for the products.
Disadvantages of Co-operative Societies
i. Insufficient capital: There is lack of adequate capital to run the society. They rely heavily on members’ contributions which may not be enough.
ii. Inefficient management: The committee in charge of administration usually consists of people who are not specialists and are part-time managers, hence the society may not be effectively and efficiently managed.
iii. High rate of embezzlement: Most of the leaders in co-operative societies are highly corrupt; some often embark on embezzlement and misuse of funds belonging to the societies.
iv. Problem of loan recovery: The society may not be able to recover loans given to members, this may destabilise the society. Recovery is difficult and in some cases even impossible.
v. High level of illiteracy: Majority of the members of co-operative societies are illiterate and such people are not able to make positive contribution to the growth of the society.
vi. Lack of initiative: There is usually lack of individual initiative as the society confers on every one equal right and opportunities.
vii. Evasion of tax: Most or the net profits of co-operative societies are not taxed rather they share it among themselves.
Similarities and Differences between Co-operative Society and Limited Liability Company
Similarities:
i. Both are legal entities.
ii. Members buy shares.
iii. They hold Annual General Meeting (AGM)
iv. Both are registered
v. The shareholders receive dividends.
Differences:
i. Co-operative societies are formed by registration under co-operative laws while public limited liablity company are formed through registration and incorporation under the company Act.
ii. Co-operative societies are managed and controlled by elected committee while public limited liablity company are managed and controlled by board of directors appointed by shareholders.
iii. Co-operative societies members pay registration fee apart from the shares while public limited liablity company members do not pay registration fee.
iv. Co-operative Societies divide surplus based on patronage while public limited liablity company divide surplus based on proportion to shareholders.
v. The aim of co-operative societies is to promote members’ welfare while the aim of public limited liablity company is to make profit.
vi. Co-operative society members have equal voting rights while members of public limited liablity company have controlling power on the basis of their shares.
Joint Ventures or Enterprises
Joint venture or enterprises can be defined as those businesses in which private investors and governments are in partnership. In other words, these are ventures which are set up by government in collaboration with private firms.
One of the major purposes of setting up a joint venture is to combine some of the advantages of government and private ownership and reduce the problems of complete government or private ownership. It also eliminates the inefficiency associated with public corporations.
Government can participate in joint venture with private firms in various ways. Some of the ways include;
i. Acquisition of part of the ownership of an already existing company.
ii. Government may provide a larger portion of the capital required to set up such a venture.
iii. Government may provide the basic infrastructure e.g, electricity, water, telephone services, etc.
iv. Government may purchase a larger portion of the shares of the joint ventures.
Joint ventures are common in car assemblies, cement manufacturing, mineral exploration and production, etc.
General Sources of Finance for Business Enterprises
i. Savings: Business enterprises, especially sole proprietorship and partnership, can raise capital from their personal or owner’s savings.
ii. Borrowing: Business enterprises, especially the small ones, can borrow money from friends and relatives.
iii. Loans and overdraft from banks: Loans and overdraft can be obtained from commercial banks or development banks, especially by co-operatives and limited liability companies.
iv. Equipment leasing: Equipment can be leased out by companies in order to raise capital.
v. Retained profits: The profits made by the company can be set aside or ploughed back as working capital.
vi. Trade credit: Raw materials can be purchased by the company on credit.
vii. Sale of shares: Business enterprises can raise capital by issuing shares for public subscription.
viii. By debentures: These are long term loans obtained from the general public at a fixed interest.
ix. Grants: Business enterprises, especially public corporations, can obtain capital by special financial grants from government, international financial institutions like African Development Bank (AfDB), International Monetary Fund (IMF) and from other foreign countries.
General and Specific Problems of Business Enterprises
i. Inadequate capital: Business enterprises, be it private or public enterprises are usually faced with inadequate capital which makes it difficult for them to expand their operations.
ii. Inadequate infrastructural facilities: Infrastructural facilities like good roads, electricity, pipe borne water, telephones services, etc are usually grossly inadequate and this make business operation very tough and difficult.
iii. Inadequate skilled personnel: Most of the skilled personnel required to operate or manage business enterprises are also inadequate. This results in low output and poor quality of products.
iv. Shortage of raw materials: Most of the raw materials needed by business enterprises to operate are in short supply. This has either forced some of the enterprises to operate at low capacity utilisation or even fold up completely.
v. Low patronage: Goods and services provided some business enterprises do encounter low patronage partly because of low standard of goods and services provided and partly because of consumer’s preference for foreign goods.
vi. Political instability: Most business enterprises find it difficult to grow due to political instability such as coups, strikes, civil war, communal crisis, etc.
vii. Low technological development: As a result of our low level of technology, most of the business enterprises have to rely on crude mode of production which lead to low output of goods and services.
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Take a quick test for this lesson
i. Define public corporation and give five examples of public corporations
ii. State the features of public corporations
iii. List and explain five advantages and disadvantages each of public corporations
iv. Explain ways in which government participates in economic activities.
v. What are the advantages and disadvantages of government ownership of public corporations
vi. Explain six specific problems associated with public corporations
vii. Discuss the sources of finance available to public corporations.
viii. Define Co-operative society
ix. State five features of a Co-operative society
x. List and explain five advantages and disadvantages each of Co-operative Societies.
xi. List five similarities and five differences between a co-operative society and a public limited liability company
xii. Discuss the sources of fund available to business enterprises.
xiii. Identify the general and specific problems of business enterprises in West Africa.
Questions answered correctly? Kudos!
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