BUSINESS AND BUSINESS AND MANAGEMENTMANAGEMENT

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BUSINESS ORGANIZATIONS BUSINESS ORGANIZATIONS & ENVIRONMENT& ENVIRONMENT

Private & Public Sector Private & Public Sector OrganizationsOrganizations

The Private Sector comprises businesses The Private Sector comprises businesses owned and controlled by individuals or groups owned and controlled by individuals or groups of individuals. of individuals. – In every country, most business activity is in the In every country, most business activity is in the

private sector.private sector.– These businesses differ in sizeThese businesses differ in size– The main objective is to make a profitThe main objective is to make a profit

Money earned from the sale of goods minus any costs Money earned from the sale of goods minus any costs involved in selling those goods or servicesinvolved in selling those goods or services

The Public Sector comprises organizations The Public Sector comprises organizations accountable to and controlled by central or accountable to and controlled by central or local government. local government.

These usually include:These usually include:– Health and education services Health and education services – DefenseDefense– Law and orderLaw and order– Some strategic industries. Some strategic industries.

THE ECONOMY

Private Sector Public Sector

The Private Sector Legal StructureThe Private Sector Legal Structure

Private SectorBusinesses

SoleTrader Partnership

LimitedCompanies

Cooperatives

PrivateLTD

PublicLTD

Public CorporationsPublic Corporations

Organizations that are wholly owned Organizations that are wholly owned by the government are called Public by the government are called Public or (or (CrownCrown) Corporations) Corporations

Examples include:Examples include:– BBC – British BroadcastingBBC – British Broadcasting– KCRC – Hong Kong’s national railwayKCRC – Hong Kong’s national railway– Nanjing Auto – China’s main automakerNanjing Auto – China’s main automaker– LCBO – Ontario’s Liquor Control BoardLCBO – Ontario’s Liquor Control Board

Reasons for Public CorporationsReasons for Public Corporations

To ensure everyone has access to basic To ensure everyone has access to basic services (health, transportation etc)services (health, transportation etc)

To avoid wasteful competition (national To avoid wasteful competition (national defense or postal delivery)defense or postal delivery)

To protect citizens and businesses through To protect citizens and businesses through institutions such as the Police and court institutions such as the Police and court systemssystems

To reduce unemployment as governments To reduce unemployment as governments tend to be large employers (teachers, tend to be large employers (teachers, doctors and nurses)doctors and nurses)

PrivatizationPrivatization

Private sector ownership provides many Private sector ownership provides many more benefits than the public sectormore benefits than the public sector– Mainly in the area of money-makingMainly in the area of money-making– As a result, many governments sell off their As a result, many governments sell off their

businesses to private interestsbusinesses to private interests Governments will then set up regulatory Governments will then set up regulatory

bodies to monitor the conduct and bodies to monitor the conduct and performance of these businesses, since performance of these businesses, since they usually have a large share of the they usually have a large share of the marketmarket– Ontario sell off of Ontario sell off of Ontario HydroOntario Hydro

Benefits of PrivatizationBenefits of Privatization Efficiency gainsEfficiency gains

– As more competition now enters the marketplaceAs more competition now enters the marketplace Lower production costsLower production costs

– Again based on a competitive environmentAgain based on a competitive environment Increased choiceIncreased choice

– For customers based on a competitive environmentFor customers based on a competitive environment Incentives to innovateIncentives to innovate

– Coming up with new ideas to stay competitiveComing up with new ideas to stay competitive Less financial burdenLess financial burden

– As the government stops funding public companiesAs the government stops funding public companies Source of government revenueSource of government revenue

– One time sales only, but the amount can be enormousOne time sales only, but the amount can be enormous

Formative Case Study – Formative Case Study – ETR 407ETR 407 In 1999, the Ontario government sold Highway 407 for $ 3.1 billion to to In 1999, the Ontario government sold Highway 407 for $ 3.1 billion to to

a consortium of Spanish and Quebec based companies, including SNC-a consortium of Spanish and Quebec based companies, including SNC-Lavalin, making it the largest privatization in Canadian history. Lavalin, making it the largest privatization in Canadian history.

In addition, much needed extensions were built at no additional cost to In addition, much needed extensions were built at no additional cost to taxpayers, creating more than 6,000 new construction jobs in the taxpayers, creating more than 6,000 new construction jobs in the province. province.

Originally the 407 was to pay for itself and become a free public highway Originally the 407 was to pay for itself and become a free public highway in approximately 30 years. in approximately 30 years.

The conditions of the sale allow the new owners to set whatever toll The conditions of the sale allow the new owners to set whatever toll rates it wants for the next 99 years. rates it wants for the next 99 years.

Today, the highway is valued at over $10 billion, and the government Today, the highway is valued at over $10 billion, and the government had been heavily criticized for the poor terms of lease, including had been heavily criticized for the poor terms of lease, including underestimating the value of the road. underestimating the value of the road.

Many "905ers" in the rapidly growing Greater Toronto Area who had Many "905ers" in the rapidly growing Greater Toronto Area who had been expecting to be served by a much-needed non-tolled, or at least been expecting to be served by a much-needed non-tolled, or at least reasonable priced Highway 407 consider its lease and skyrocketing toll reasonable priced Highway 407 consider its lease and skyrocketing toll rates a sellout, thereby significantly eroding the Conservatives' formerly rates a sellout, thereby significantly eroding the Conservatives' formerly strong support base in that region. strong support base in that region.

Critics have complained that the rising toll rates have made Highway 407 Critics have complained that the rising toll rates have made Highway 407 more of a "luxury" rather than a bypass on existing congested roads as it more of a "luxury" rather than a bypass on existing congested roads as it was initially intendedwas initially intended