The philosophical basis of the public enterprises in particular and public sector in general is rooted in the ideology of mixed economy. In certain countries, for a number of socio economic reasons, certain course of development has been decided which are typical of mixed economy where there exist both public and private sectors. The private sector is guided by considerations of commercial profitability as indexed in the operation of free market mechanism. In this process, the private sector always wants to enter into activities or projects which involve low overhead costs, low risks, high returns, short gestation and fast returns associated with it. The public sector is, therefore, expected to compensate. In a mixed economy, the public sector is expected to get into projects which involve high overhead costs, high risks, nil or negligible or even negative returns, long gestation and slow returns. In other words, the public sector is guided more by considerations of “social desirability” than by “commercial profitability”.
The private sector may have its decisions on computation of direct costs and direct returns, but the public sector must take care of social costs and social benefits, and thereby a public sector unit may maximize net social returns in the long run. In a nutshell, a public enterprise should take a wide as well as long view of investment projects. This suggests that in a mixed economy, the public sector does not compete, but complement the private sector. In this process, the public sector is guided by comprehensive planning of the national economy rather than by narrow free market price mechanism.
Nowadays, this philosophy is changing and it is found that in the name of social desirability, the operational efficiency of public enterprises is coming down and instead of generating “surpluses”, they have to be increasingly subsidized to cover up their losses.
The original idea was that the “profits of public enterprises” would finance the extension and development of state sector in a socialistic pattern of society. However, experience shows that a large number of public enterprises have increasingly become a drag on our resources; quite a few of them have become “sick” and have emerged as social burden. In order to reverse this trend, a new philosophy of privatization is taking form and shape. The tendency towards privatization (in contrast to nationalization) is being supplemented by growing tendency towards decontrol, delicensing, decentralization, deregulation and more functional autonomy rather than bureaucratic interference. There is even a move to liquidate the chronically sick public sector units. All these are designed to “mend and not end” public enterprises. Such moves are steps towards consolidation and efficiency orientation of public sector units.
In view of the current philosophy in regard to public sector enterprises, the age old objectives of public enterprises management is getting changed towards a new lease of life and the objectives are listed as mentioned below:
To accelerate economic growth and industrialization of the country, creating the necessary infrastructure of economic development;
To promote fair distribution of income and wealth, inter personal as well as inter regional;
To promote balanced regional development;
To promote the growth of strategic defense oriented industries;
To assist the development of small and ancillary units;
To create employment opportunities;
To maximize foreign exchange earnings through a proper mix of import substitution and export promotion and
To generate forces of economic and technological self reliance.