Question

Summarise the information below without leaving key information
(iii) Developing Regions for Development
Governments of developing countries may introduce public enterprises as catalysts of development of new activities in new and old regions for development. The risks involved with such ventures are often unacceptably high for private industry and this leads to the development of public enterprises in fulfilling such developmental activity.
(iv) Exercising Control over the Economy
Governments of developing countries deem it desirable to exercise control over their economy, partly as a result of public interest. Developing countries which depend to a large extend on natural resources have found it necessary to place these under public ownership. Governments also desire to hold a certain share of the market especially in the case of essential goods and services, because they consider that this helps them to manage effectively in a period of crisis.
A United Nations publication advances the following pragmatic reasons which had a government to expand public enterprises:

(a) National defense, war and related activities which the government does not feel desirable to leave in private hands;
(b) A lack of appropriate private enterprises for certain purposes (e.g. agricultural credit)
(c) The inability of private interests to develop certain lines of production (e.g. in manufacturing industry)
(d) The need for certain forms of government assistance to private undertakings (e.g. marketing and production of certain kinds of goods
(e) A desire to impose a more rational organization on specific sectors of the economy (e.g. in public utilities)
(f) A desire to establish ‘model’ productive units (e.g. in agricultural processing) and;
(g) The fact that certain economic undertakings have traditionally been public enterprises (e.g., ports). Closely related to (b) and (c) is the strong desire of the governments of many developing countries to accelerate economic growth, to speed up the process of diversification through new enterprises (where the economy heavily depends on the export of a small number of primary products), to achieve greater self-sufficiency or self-reliance and/or to reduce the excessive influence of enterprises owned by foreigners or by unpopular minority groups, and the incapability of private enterprises to achieve these objectives.
(h) In brief, the great expansion of the public enterprises in most developing countries is basically development-oriented. Public enterprises are now looked upon as the main instruments in the implementation of development plans.
2.3: Analysis of Objectives of Public Enterprises
In developing countries with mixed economies including India, public enterprises pursue multiple, often contradictory, objectives. They often see their role as political, or as running social welfare programmes, or achieving certain economic objectives.
(i) Political Objectives
These may be created for political reasons with little regard to economies of scale. Since production considerations and market opportunities play a subsidiary role in the decision, such a public enterprise may operate less efficiently. For example, the adoption of socialist pattern of society in India would necessitate that the state should assume direct responsibility for the future development of industries over a wide area.

Many public enterprises have operated as disguised instruments of political power. They may be employed for breaking the power by the control of the ‘commanding heights of the economy’. Although private enterprise is generally exhorted to attune itself to the development needs of the country, there is sometimes a backdrop of lack of faith in the motivation towards overall long range objectives. In addition, there is the suspicion that private companies are liable to conceal profits or that the tax system is not good enough to adequately tax them. Government has a natural tendency to believe that it knows best how to direct investment and that the private sector does not have a monopoly of wisdom.

Answer 1

Summary

- Purpose of public enterprises in developing countries
- Promote development in new and existing regions by undertaking high‑risk ventures that private industry will not.
- Enable government control over the economy: put key natural resources under public ownership, and retain market share in essential goods and services to manage crises.

- Pragmatic reasons (United Nations)
- National defense, war‑related activities unsuitable for private control.
- Absence of appropriate private enterprises for certain functions (e.g., agricultural credit).
- Private sector inability to develop certain production lines (e.g., manufacturing).
- Need for government assistance to private undertakings (e.g., marketing and production support).
- Desire for more rational organization of specific sectors (e.g., public utilities).
- Creation of ‘model’ productive units (e.g., agricultural processing).
- Continuation of traditionally public undertakings (e.g., ports).
- Closely related motives: accelerate economic growth, diversify away from narrow primary‑product dependence, achieve self‑sufficiency or reduce foreign/minority economic dominance when private firms cannot deliver these goals.
- Overall: the large expansion of public enterprises in many developing countries is development‑oriented; they are treated as primary instruments for implementing development plans.

- Objectives and tensions in mixed economies
- Public enterprises pursue multiple, often conflicting objectives—economic, social welfare and political.
- Political objectives: many are created for political reasons with little regard for economies of scale or market viability, which can reduce efficiency.
- They can serve as instruments of political power (e.g., controlling the “commanding heights” of the economy).
- Distrust of private sector motives (fear of profit concealment or inadequate taxation) and a belief that government better directs investment also drive state ownership and intervention.