Types of Organisations » Public Corporations - Features and Purposes

What you'll learn this session

Study time: 30 minutes

Define what public corporations are and how they differ from private companies
Identify the key features and characteristics of public corporations
Understand the main purposes and objectives of public corporations
Explore real-world examples of UK public corporations
Analyse the advantages and disadvantages of public corporation structure
Examine how public corporations are controlled and managed

🔒 Unlock Full Course Content

Unlock This Course

Introduction to Public Corporations

Public corporations are a unique type of business organisation that sits between the private and public sectors. They're owned by the government but operate more like private businesses. Think of them as government-owned companies that provide essential services to the public whilst trying to make a profit or break even.

In the UK, public corporations have played a major role in providing key services like transport, utilities and broadcasting. While many have been privatised since the 1980s, some still exist today and continue to serve important functions in our economy.

Key Definitions:

Public Corporation: A business organisation owned by the government but operating independently with its own management structure.
Nationalisation: The process of bringing privately-owned businesses under government control.
Privatisation: The process of transferring publicly-owned businesses to private ownership.
Public Interest: Activities or services that benefit society as a whole rather than just making profit.

🏢 Government Ownership

Unlike private companies owned by shareholders, public corporations are owned entirely by the government on behalf of the public. This means any profits belong to the taxpayers and losses are covered by public funds.

⚙ Independent Management

Despite government ownership, public corporations have their own board of directors and management team. They can make day-to-day decisions without constant government interference, giving them flexibility to operate efficiently.

Key Features of Public Corporations

Public corporations have several distinctive features that set them apart from other types of business organisations. Understanding these characteristics helps explain why governments choose this structure for certain industries and services.

Ownership and Control Structure

The ownership structure of public corporations is quite unique. While the government owns the organisation, it doesn't run it directly. Instead, there's a clear separation between ownership and management.

👤 Government Ownership

The state owns 100% of the corporation through a government department or ministry. No private shareholders exist.

💼 Board of Directors

Appointed by government ministers, the board makes strategic decisions and oversees management performance.

🔧 Management Team

Professional managers run daily operations, make commercial decisions and implement board policies.

Case Study Focus: BBC

The British Broadcasting Corporation (BBC) is one of the UK's most famous public corporations. Established in 1922, it's funded primarily through the television licence fee collected from households. The BBC operates independently from government interference in its programming decisions, but its charter and funding are reviewed periodically by Parliament. It demonstrates how public corporations can balance public service objectives with operational independence.

Financial Characteristics

Public corporations have unique financial arrangements that reflect their dual nature as government-owned but commercially-operated entities. Their funding and financial objectives differ significantly from private companies.

Funding Sources

Public corporations can be funded through various methods, depending on their purpose and the services they provide. This flexibility in funding helps them achieve their public service objectives.

💰 Government Grants

Direct funding from the Treasury or relevant government departments, especially for corporations providing essential public services that may not be profitable.

💳 Revenue Generation

Income from selling goods or services to customers, similar to private companies. Many public corporations aim to cover their costs through sales revenue.

Main Purposes of Public Corporations

Governments establish public corporations for specific reasons that align with broader economic and social objectives. These purposes often involve providing services that private companies might find unprofitable or strategically important.

Essential Service Provision

One of the primary purposes is ensuring essential services reach all citizens, regardless of profitability. Private companies might avoid serving remote areas or low-income customers because it's not financially attractive.

⚡ Utilities

Electricity, gas and water services that everyone needs, including rural and remote communities that might be expensive to serve.

🚌 Transport

Railway networks, bus services and airports that connect communities and support economic development across the country.

📻 Communications

Broadcasting services, postal systems and telecommunications that ensure information reaches all citizens.

Case Study Focus: Network Rail

Network Rail manages Britain's railway infrastructure, including tracks, signals and stations. As a public corporation, it ensures the rail network serves the entire country, including less profitable rural routes that private companies might abandon. It's funded through government grants and charges to train operating companies, balancing commercial efficiency with public service obligations.

Strategic Economic Objectives

Beyond service provision, public corporations serve broader economic purposes that align with government policy objectives. They can be powerful tools for implementing economic strategy and supporting national development.

Economic Development and Employment

Public corporations can support economic development in ways that purely profit-driven companies might not. They can maintain employment during economic downturns and invest in long-term projects that benefit society.

🏢 Regional Development

Investing in infrastructure and services in economically disadvantaged areas to promote balanced national development and reduce regional inequalities.

📈 Strategic Industries

Maintaining control over industries considered vital to national security or economic stability, such as energy, transport, or defence-related sectors.

Advantages and Disadvantages

Like all business structures, public corporations have both benefits and drawbacks. Understanding these helps explain why governments choose this model for some industries while privatising others.

Advantages of Public Corporations

The public corporation model offers several benefits that make it attractive for certain types of businesses and services.

🎯 Public Service Focus

Can prioritise public benefit over profit maximisation, ensuring services reach all citizens regardless of profitability.

💰 Financial Stability

Government backing provides financial security and ability to invest in long-term projects that private companies might avoid.

⚙ Operational Independence

Professional management can make commercial decisions without constant political interference in daily operations.

Disadvantages of Public Corporations

However, the public corporation structure also faces significant challenges that can limit its effectiveness.

💲 Efficiency Concerns

Without competition and profit pressure, public corporations may become less efficient and innovative compared to private companies.

📈 Political Influence

Despite operational independence, political considerations can still influence major decisions, potentially conflicting with commercial logic.

Case Study Focus: Royal Mail Privatisation

Royal Mail was a public corporation for centuries before being privatised in 2013. As a public corporation, it provided universal postal service to every address in the UK, including remote locations that were expensive to serve. Critics argued it was inefficient and needed private sector discipline, while supporters worried privatisation would reduce service quality in rural areas. The privatisation raised £3.3 billion for the government but remains controversial, with ongoing debates about service levels and pricing.

Modern Examples and Current Role

While many UK public corporations were privatised in the 1980s and 1990s, several important ones still exist today, continuing to play vital roles in the economy and society.

Current UK Public Corporations

Today's public corporations operate in sectors where government involvement is still considered necessary or beneficial for public interest.

📻 BBC

Provides public service broadcasting funded through licence fees, maintaining editorial independence while serving public interest in news, education and entertainment.

🚌 Network Rail

Manages railway infrastructure across Britain, balancing commercial efficiency with the need to maintain comprehensive national rail connectivity.

Conclusion

Public corporations represent an important middle ground between pure government departments and private companies. They allow governments to maintain control over strategic industries and essential services while benefiting from professional management and operational flexibility. Understanding their features and purposes helps explain how modern economies balance public interest with commercial efficiency and why this organisational structure remains relevant in today's mixed economy.

🔒 Test Your Knowledge!