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PUBLIC SECTOR IN ECONOMICฝ

KAMPALA INTERNATIONLA UNIVERSITY SCHOOL OF ECONOMICS AND APPLIED STATISTICS

Date:           : 14, October, 2011 Questions: A-define public sector economics B-define public sector C-examples of public authorityF-what are the roles of public sector D-examples of public goods                        G-define private sector E-characteristics of public goods                  H-characteristics of private sector

(A)-Public sector economics is part of the economy concerned with providing basic government services. The composition of the publicsector varies by country, but in most public sector includes such services as the police, military, public roads, public transit, primaryeducation and healthcare for the poor. The public sector might provide services that non-payer cannot be excluded from (such as street lighting), services which benefit all of society rather than just the individual who uses the service (such as public education), and services that encourage equal opportunity (Paul A. samulson1954). (B)-The public sectorreferred to as the state sector, is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal (Ray Pall, June 2008). Professor Stephen Bailey defined “Public sector economics is concerned with justifying the existence of governments and explaining how they can affect economic activity”. It explains how the ‘invisible hand' of the market is tempered by the ‘visible hand' of government in the mixed economy of both private and public sectors adopted by the vast majority of nations. Traditionally, public-sector economics has been concerned with the study of how governments can deal with the failure of markets to achieve efficient outcomes. Possible remedies which are considered include using public expenditure and taxation, taking some firms into state ownership and introducing regulation. These are all areas of microeconomic theory, policy and practice.

(C)-Examples of public sector authority/bodies aresocial security, administering urban planning and organizing national defense The general duty applies to all functions of every public authority. This includes councils, schools, hospitals and as well as central government departments. The definition of a public authority is ‘any person who has functions of a public nature’, which is the same approach taken within the Disability Discrimination Act 2005. .Direct administration funded authority, the delivering organization generally has no specific requirement to meet commercial success criteria, and production decisions are determined by government. 1.	the Department for Community Policies; 2.	Maritime Authority 3.	Customs Authority 4.	Port Authority 5.	Competition Authority; 6.	Regulatory Authority for Electricity and Gas; 7.	The Communications Regulatory Authority; 8.	Banking authority; 9.	Data protection Authority; 10.	Revenue office authority; 11.	Classification societies; 12.	 Municipalities; 13.	 Mountain communities, their consortia and associations; 14.	Universities; 15.	Territorial housing agencies; 16.	Chambers of commerce, industry, crafts and agriculture and their

(D)-In economics, a public good is a good that is non-rival and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability means that no one can be effectively excluded from using the good.[1] In the real world, there may be no such thing as an absolutely non-rivaled and non-excludable good; but economists think that some goods approximate the concept closely enough for the analysis to be economically useful (David G. 2002). In addition Public goods are those goods and services provided by the government because a market failure has occurred and the market has not provided them. Sometimes it is in our benefit to not allow for a market provision. In the case of police, national defense and public education it can be argued that private provision of these services would be less desirable for a variety of reasons. Common examples of public goods include: defense, public fireworks, lighthouses, clean air and other environmental goods, and information goods, such as software development, authorship, and invention. Technological progress can create new public goods. The most simple examples are street lights, which are relatively recent inventions (by historical standards). One person's enjoyment of them does not detract from other persons' enjoyment, and it currently would be prohibitively expensive to charge individuals separately for the amount of light they presumably use. On the other hand, a public good's status may change over time. Technological progress can significantly impact excludability of traditional public goods: encryption allows broadcasters to sell individual access to their programming. The costs for electronic road pricing have fallen dramatically, paving the way for detailed billing based on actual use. National defense, a standard example of a pure public good, suppose homo economics thinks about exerting some extra effort to defend the nation, the benefits to the individual of this effort would be very low, since the benefits would be distributed among all of the millions of other people in the country. There is also a very high possibility that he or she could get injured or killed during the course of his or her military service. Market failure, in which market-like behavior of individual gain-seeking does not produce efficient results, the production of public goods results in positive externalities which are not remunerated. If private organizations don't reap all the benefits of a public good which they have produced, their incentives to produce it voluntarily might be insufficient. Consumers can take advantage of public goods without contributing sufficiently to their creation. This is called the free rider problem, or occasionally, the "easy rider problem" (because consumer's contributions will be small but non-zero). If too many consumers decide to 'free-ride', private costs exceed private benefits and the incentive to provide the good or service through the market disappears. (E)-Characteristics of Public Goods As one might expect, the characteristics of pure public goods are the opposite of private goods: Non-excludability: The benefits derived from the provision of pure public goods cannot be confined to only those who have actually paid for it. In this sense, non-payers can enjoy the benefits of consumption at no financial cost to themselves – this is known as the “free-rider” problem and it means that people have a temptation to consume without paying! Non-rival consumption: Consumption of a public good by one person does not reduce the availability of a good to everyone else – therefore we all consume the same amount of public goods even though our tastes and preferences for these goods (and therefore our valuation of the benefit we derive from them) might differ.

(F)-Role of public sector The public sector has been playing a vital role in the economic development of the country. In fact the public sector has come to occupy such an important place in our economy, which on its effective performance depends largely the achievement of the country's economic n social goals. Public sector is considered a powerful engine of economic development and an important instrument of self-reliance. The main contributions of public enterprises to the country's economy maybe described as follows:

Fillings of Gaps: At the time of independence, there existed serious gaps in the industrial structure of the country, particularly in the fields of heavy industries such as steel heavy, machine tools, exploration an refining of oil, heavy Electrical and equipment, chemicals and fertilizers, defense equipment, etc. Public sector has helped to fill up these gaps. The basic infrastructure required for rapid industrialisation has been built up, through the production of strategic capital goods. The public sector has considerably widened the industrial base of the country. Employment: Public sector has created millions of jobs to tackle the unemployment problem in the country. Public sector accounts for about two-thirds of the total employment in the organised industrial sector in India. By taking over many sick units, the public sector has protected the employment of millions. Public sector has also contributed a lot towards the improvement of working and living conditions of workers by serving as a model employer.

Balanced Regional Development: Public sector undertakings have located their plants in backward and untrodden parts of the county. There area lacked basic industrial and civic facilities like electricity, water supply, township an manpower. Public enterprises have developed these facilities thereby brining about complete transformation in the socioeconomic life of the people in these regions. Steel plants of Bhilai, Rourkela and Durgapur; fertilizer factory at Sindri, Machine Tool plants in Rajasthan, Precision Instruments plants in Kerla and Rajasthan, etc. are a few examples of the development of backward regions by the public sector.

Contribution to Public Exchequer: In recent years, the public sector has made increasing contributions to the public sector in the form of dividend, corporate taxes, excise and customs duty, etc. The total contribution from the public enterprises to the Exchequer increased from Rs. 11,074 crores in 1982-83 to Rs. 23, 972 crores in 1986-87.

Foreign Exchange Earnings: Public sector has contributed a great deal in improving the balance of payments position of the county. The public enterprises have saved valuable foreign exchange trough import substitution. Public enterprises have earned foreign exchange of Rs. 3,942 crores during 1986-87 by way of exports.

Development of Ancillary industries: In order to encourage the development of small scale and medium-sized industries in the country, the Government of India has launched a national program. Public sector has contributed to this program by fostering the growth of ancillary industries and satellite planets. Such plants have been established around the major public sector undertakings. There is a strong base of ancillary industries at several centers such as the Bokaro Industrial Complex, the Bhilai Steel Plant, The Rourkela Steel Complex, the Heavy Engineering Corporation at Ranchi, Hindustan Machine Tools at Bangalore, and the units of Bharat Heavy Electrical at Bhopal, Hyderabad and Hardwar.

Research and Development: As most of the public enterprises are engaged in high technology and heavy industries, they have undertaken research and development programmes in a big way. Public sector has laid strong and wide base for self-reliance in the field of technical know-how, maintenance and repair of sophisticated industrial plants, machinery and equipment in the country. Through the development of technological skill, public enterprises have reduced dependence on foreign knowhow. With the help of the technological capability, public sector undertakings have successfully competed in the international market an they have secured turnkey projects in several countries of the world. Community Development: Several public sector undertakings have developed townships to provide all the civic amenities to their employees. These townships consists of houses, etc. Public enterprises have constructed roads and other infrastructural facility to link these townships to other parts of the country. Such townships have been very helpful in improving community life.

Social Justice :Public enterprises have contributed towards the achievement of constitutional objectives. They have been helpful in reducing the concentration of economic power in private hands, in curbing anti-social monopolies, in accelerating public control over the national economy and in bringing about a socialistic pattern of society. Mobalization of ResourceMobalization of resources is an other important role of public sector, the government can mobalize or raise resources by imposing taxes on the people and industrials, by encouraging savings through saving schemes, surplus of public enterprises and borrowings and making them available for investment for the rapid economic development of the underdevelopedcountry.

In conclusion to the foregoing, the public sector has played an important role in the achievement of constitutional goals like reducing concentration of economic power in private hands, increasing public control over the national economy, creating a socialistic pattern of society, etc. With all its linkages the public sector has made solid contributions to national self-reliance. (G)-In economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state. By contrast, enterprises that are part of the state are part of the public sector; private, non-profit organizations are regarded as part of the voluntary sector. (H)-Characteristics of Private Goods Excludability:Consumers of private goods can be excluded from consuming the product by the seller if they are not willing or able to pay for it. For example a ticket to the theatre or a meal in a restaurant is clearly a private good. Another example is the increasing use of “pay-per-view” as a means of extracting payment from people wanting to watch exclusive coverage of sporting events on television or the payment required to travel on a toll-road or toll-bridge. Another example of a private good is the use of subscription-based services on the internet. Some newspapers provide the bulk of their news stories on the internet as a “quasi public good” such as The Guardian www.guardian.co.uk. Others are developing an alternative business model where users can only access premium services through password-protected parts of a web site that require payment from consumers examples include The Economist www.economist.com and the Financial Times www.ft.com. Excludability gives the service provider (the seller) the chance to make a profit from producing and selling the product. As we shall see, with public goods, such excludability does not exist. When goods are excludable, the owners can exercise property rights. Rivalry: With a private good, one person's consumption of a product reduces the amount left for others to consume and benefit from - because scarce resources are used up in producing and supplying the good or service. If you order and then enjoy a pizza from Pizza Hut, that pizza is no longer available to someone else. Likewise driving your car on a road uses up road space that is no longer available at that time to another motorist. The greater the volume of traffic on the roads, the higher the likelihood of traffic congestion which has the effect of reducing the average speed and increasing the average journey time for each road user. Reject ability:Private goods and services can be rejected - if you don't like the soup on the college or school menu, you can use your money to buy something else! You can choose not to travel on Virgin Rail on a journey to the North West and go instead by coach, or you can choose not to buy a season ticket for your local soccer club and instead use the money to finance a subscription to a local health club. All private goods and services can be rejected by the final consumer should their tastes and preferences change.

 Prepared by Ahmed Mumin Haji