Question

Some people argue that government-owned enterprises do not perform as well as private enterprises. Specifically, government-owned enterprises cannot efficiently allocate resources used in the production process. Do you agree with this view? Please use economic theories to explain in detail why you think this is correct or why this statement is not reliable. In your explanation, please make a comparison between a government-owned company and a private company in the same industry to support your argument. You may compare the operating revenue, costs, etc. of the two companies.

Answer 1

Ans

Yes I agree because Public sector undertakings are not motivated by invisible hand of self interest. Employees can even get full salary for decades even if these undertakings make losses.They are effectively subsidised by Govt. On the other hand in private sector resources are not wasted No effort is made to produce goods which are not demanded by society.

In public sector employees are agents of society(principal).And since society is hardly perusing joint intrests vigorously the agent can easily misuse their position for personal benefits. Often employees indulge in corruption. On the other hand in private sector very few shareholders do monitor firm effectively and coordination among them is easy. Even politics kills efficiency of public sector

Recently we heard one such example. In India BSNL is a public sector company providing broadband, telecom and mobile services. It was not even able to provide salary to its employees. On the other hand private companies like Jio have grown tremendously and that too within last few years Whileas bsnl has been in market for decades. Before Jio India was one of the least developed country in broadband access but now it is within top 5 countries. Bsnl could not provide land-line broadband to most of rural India but Now Jio and airtel are providing optic fibre cables upto homes in even rural areas. They are offering 1gb/secound speed Whileas bsnl could not offer even 10 mb/secound speed. Furthermore bsnl services are quite unreliable. They breakdown easily