The public sector of the economy appeared along with the first states when people began to unite because it was easier for the larger community to survive. Tax collection, defense, public safety are the primary elements with which any country began. Then there appeared state enterprises for the production of weapons, communications, and transportation. The public sector of the economy is a set of subjects of all types of activities that the state is engaged in. The first full-fledged model of the public sector of the economy appeared in ancient China.
The concept
The public sector of the economy is organizations, institutions, enterprises owned by the state through which it participates in production, distribution and exchange. These economic entities can be controlled by the state directly or through their representatives.
First option
As a specific type of ownership and activity, the state sector of the country's economy appeared in 140 BC in Ancient China under the emperor of the Han Dynasty U-Di. The country's governance model included almost all the elements inherent in the modern state economy.
The Chinese state owned enterprises of various industries, including mines, quarries, saltworks, land and water transport, and credit institutions. Emperor Dee introduced a unified monetary system and excise taxes, control over competition and prices.
The state adopted a plan for interregional cooperation and stimulating the development of agriculture. Together with the public sector, the first system for managing the public sector of the economy was developed in the country. A modified model is still used in modern China.
Items
The state carries out its activities through its representative organizations in various fields of production, distribution and circulation. In production, elements of the state sector of the economy are state and municipal enterprises. In most countries of the world, such enterprises are created in industries where it is not very profitable for the private sector to work.
In the sphere of distribution, the main elements are state and local budgets, taxes, subsidies and preferences. The state is forced to participate in the redistribution of public goods, including in order to reduce inequality in the incomes of the population, protect the least protected segments of the population, and reduce imbalances in the development of different regions.
In the sphere of circulation, the main element of the state sector of the economy is the Central Bank, which is responsible for the monetary policy and the financial system of the country.
How is it formed?
In ordinary situations, the development of the public sector of the economy occurs through the construction of new enterprises with funds from the state and local budgets. For example, enterprises of the military-industrial complex are being built at the expense of the state budget in Russia, and utilities are being built at the expense of local budgets.
In some cases, the state nationalizes fully or partially private sector enterprises. The state is forced to take large unprofitable enterprises; such a practice exists in many European countries, including France, Italy, Great Britain, and Austria. In these countries, enterprises of various industries were nationalized, including coal mines, automobile factories, and air carriers.
Functions
One of the functions of the public sector of the economy is the formation and maintenance of the national economy. In capitalist countries, state-owned enterprises are created where the private sector can not cope, and imbalances arise in the economy. Often, after an enterprise is nationalized and put in order, it returns to the private sector.
For example, many enterprises in the South Korean conglomerate Daewoo were nationalized and, after a period of reorganization, were sold to the private sector. The most classic case of the “failure” of the mechanisms of a market economy is monopolization, with which the state fights regulation and participation in production.
The economic role of the public sector in the economy is to create enterprises in the interests of the country as a whole, and not in order to maximize profits. Enterprises can be created in order to effectively distribute productive forces, regional development, and create new national sectors of the economy.
More on economic function
The state is able to accumulate large volumes of resources and ensure financial stability and demand, therefore, one of the important functions of the state sector of the economy is the creation of capital-intensive facilities, often with long payback periods and low profitability. The most developed regions of Asia - Singapore, Hong Kong, South Korea, for example, began the development of industry with public investment.
The state assumes risks in situations where private business cannot cope with the technological modernization of backward industries, which are critically important for the country. For the development of individual regions, a country can not only create conditions for attracting private business, but also build its own enterprises. In some cases, public sector enterprises are organized in industries where there are private enterprises that occupy a monopoly position in order to reduce their impact on the market. Countries invest heavily in key industries to reduce the control of foreign global corporations.
Main directions
Depending on the country's economic traditions, the state has property in a wide variety of industries. For example, in Russia it is the extraction of natural gas, in Malaysia, Venezuela - oil, in Taiwan - the production and sale of alcohol. But in all countries, the state is responsible for the infrastructure necessary for the functioning of the economy.
At the expense of the state budget, railways and roads are being built, utilities and energy facilities are developing. These are mainly enterprises of unprofitable sectors and high social significance. The state assumes entrepreneurial risks when it is necessary to develop new technologies or entire industries critical for the country.
In all countries, the development of high-tech industries takes place with the partnership of the public and private sectors of the economy. Sometimes the state has to act as a rescuer, then unprofitable enterprises are nationalized. This is usually done for significant large enterprises with a large number of employees.
Regulatory methods
Like any other part of economic activity in the country, the economy of the state and municipal sectors is regulated by the state. Direct and indirect methods of influence on this sector of the economy are used. Direct methods include:
- creation of a legislative base that determines the ability to engage in one or another type of activity;
- direct participation in production activities, including equity;
- privatization of state property, usually with a view to replenishing the budget and transferring the business to a more efficient owner;
- investments, loan guarantees and other methods of financial support.
Indirect methods of regulating the public sector of the economy are tax regulation, stimulation of demand and public-private partnerships. By setting rates, the flow of investment in lower tax industries is stimulated. The increase in household income, for example, stimulates demand for consumer goods, and the size of the central bank's key rate determines where it is more profitable to send money to production or to the financial sector.
Who works in the public sector?
The variety of functions of the state determines the existence of hundreds of types of activities, which are engaged in state and municipal enterprises. All enterprises can be attributed to three types:
- Non-independent public law enterprises. These include prisons, schools, mints.
- Independent enterprises operating under public law. These include post office, railways and roads, state holdings and corporations.
- Enterprises in the form of a private legal entity. These include joint-stock companies where state participation is formalized through shares.
Enterprises of the first and second groups are created and operate on the basis of special legislative acts. In some countries, these enterprises may also exist in joint-stock form, for example, private prisons operate in the United States and some European countries, and many countries also have private schools. State enterprise is carried out, usually through participation in a joint stock company.
Advantages and disadvantages
In general, a decrease in the role of the public sector in the economy is considered a positive factor, because everyone notes the lack of reliable control and effective management methods compared to private enterprises. State-owned enterprises are a source of corruption and nepotism (a synonym is nepotism).
In China, despite brutal measures of struggle, facts of corruption in the public sector are constantly revealed, and in South Korea all casino employees were fired for nepotism last year. State-owned enterprises are often weakly connected with the market and cannot quickly respond to changes in demand due to the need for lengthy coordination with government representatives.
The advantages of the public sector of the economy are stability, thanks to public investment, stability of work, thanks to guaranteed demand, the ability to work within a plan or program.