Public sector and their impacts on the economy


public sector
the public sector


The meaning of public sector:


The public sector refers to all production that is in public hands. That is, in the public sector, the organization that produces goods and services is owned by the state. It is thus a combination of central government, state government, local authorities, the nationalized industries, public corporation, government administration, defense, and similar public services including commercial and non commercial undertakings of the government. Some public sector activities are in form of nationalized industries and companies. Put differently, this sector is that part of the economy whose doings but economic and non economic activities are under the control and direction of government and the state.


Public sector services

The public sector services can be divided into three main components as stated below:


1.      Those public services which are provided free of cost to the members of the society (or where that is more or less the intention) such as administration, defense, law and order justice, etc. these are often called pure public goods.

2.      Those public services which are run and maintained by the departments and or agencies. These include postal service, public utilities, education, bridges and roads, etc. some of these services are financed and run on different criteria such that they may be in the nature of commercial undertaking and are hence quasi –public or merit goods.

3.      Those public services which are provided not by the departments or agencies but through the means of autonomous or semi autonomous bodies such as firm, companies and corporations and hence act as economic concern even though they are still owned by the government. In such a case they may have their own price policies reflecting different criteria and objectives.


The impacts of the public sector on the economy

Below are some of the impacts of public sector on the economy as a whole:


Provision of public utilities:


The public sector provided public utilities such as roads, water supply, electricity, telegraph and telephones, transport (road, air, water and the rails), postal services, etc. These social overhead capital facilitate investment in direct productive activities in industries and agriculture both in the public an private sector of the economy (by jhingan in 1975)


Provision of funds or act as a source of capital:


Public sector undertaking accelerates development while making a source to borrowing unnecessary.

Development of natural resources:


In the case of some natural resources like mines, forest, fisheries etc, the commercial interest of the private enterprises may come into conflict with those of the nation hence the need for the public sector to intervene to effect rational and full utilization of such resources for the societal welfare this does not only build up domestic base for capital goods but also dispenses with imports of raw materials which would have drained scarce foreign exchange earnings.


Development of basic and key industries or commanding height of the economy:


The public sector , in order to accelerate the pace of socio – economic development, undertakes the development of basic but key industries or commanding height in the economy such as iron and steel industries, liquefied natural gas, heavy chemicals and electrical machines, tools or capital outlay which the government can afford to provide unlike the private sector.

The development of such industries also saves foreign exchange that could have been used for importing them.


Provision of natural monopoly:


There are certain projects by their very nature to be in the public sector. These include currency and mint, defense industries, and certain research and development organizations.


Removal of exploitation trade:


The public sector, through its regulatory and legislative framework, removes exploitative practices in domestic and international trade thus leading to fair trading and reasonable profits for the state and individuals. Such fair profit can then be ploughed back for investment purpose.


Provision of public goods:


There are both pure public goods and merit goods which exhibit the characteristics of non excludability spillover effects and externalities ,and if left in private hands will not be produced at all hence the need for public sector  action, for example in road and defense and education.


Helping private enterprises:


Public sector activities like the establishment of investment trusts, government banks, financial corporation’s etc. help to provide direct financial assistance by way of loans and credit to private enterprises particularly in agriculture and industry.


Achievement of some macroeconomic goals in the economy:


The public sector deliberately takes measures which lead to the achievement of some desirable state goals such as full employment, balanced regional development, increased income, income equity, improved standard of living, production and efficiency, etc.




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