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Difficulty: MediumPublic Enterprises: Rationale, Features, Management, and Control

In many developing economies, the government establishes statutory corporations to manage vital infrastructure such as water supply and rail transport. What is the primary economic rationale behind establishing these public enterprises?

  1. To prevent private monopoly exploitation and guarantee affordable access to essential public servicesAnswer
  2. B
    To maximize enterprise profit by selling equity shares to private investors
  3. C
    To provide personal direct services that operate entirely outside commercial trade
  4. D
    To regulate internal board procedures through standard commercial articles of association

Answer

To prevent private monopoly exploitation and guarantee affordable access to essential public services
The core rationale for establishing public enterprises, particularly public utilities, is to protect the public from private monopoly pricing, ensure social welfare, and provide essential services at affordable rates.

Step-by-Step Solution

1
Analyze the nature of essential public utility sectors like water and rail transport.
These sectors involve high capital requirements and directly impact public welfares.
Leaving essential public utilities entirely to private profit-seeking firms risks prohibitive pricing and service undersupply.
2
Determine the main rationale for government ownership of public enterprises.
The government intervenes by creating public enterprises to ensure service accessibility and protect consumers from private monopoly exploitation.
Social welfare and public service provision take priority over profit maximization in public utilities.

Key Concept

Rationale for Public Enterprises
Estimated Time:1m 0s
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Topics

Public Enterprises: Rationale, Features, Management, and Control

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