Government Business Enterprise
Some services are viewed as necessary to society—we can’t go without them! Utilities, postal services, railing companies, these are things integral to our economy and lifestyles, and sometimes they are so important that the government decides to be involved in their management, yet they still run as a business.
A government business enterprise (or GBE) is a hybrid organization that has features of a private company and a public organization:
- They act like private companies in that they seek to make a profit and compete against other companies
- They act like a public organization in that they carry out government policies and non-commercial services; think of the mail service, railways, etc.
The following are the big three characteristics that define a government business enterprise:
- The company’s primary purpose is in commercial activities in the private sector
- The company is controlled by the government, and
- The company has a separate legal existence from the government
Wait, if a government business enterprise is controlled by the government, how can it have a separate legal existence? As we mentioned, GBEs are a hybrid. Think of the government as a holding company over the private enterprise.
Governments will get involved in commercial enterprises for many reasons. Sometimes the government doesn’t feel like the private sector can deliver the required service (e.g., the mail or railways). The government might want to fulfill a service obligation, knowing that private enterprise might bail out as soon as profits drop.
Think of a smaller country like Singapore for example. Singapore Airlines has been incorporated to provide air travel in and out the country. But what if profits fall and management decides to fold the organization? If this is the only air carrier in the country, its void is hard to fill. Therefore, a GBE can be created to ensure the continuation of the service.
Natural monopolies are another business entity that the government eyes for GBEs. These are goods or services that don’t necessarily benefit from competition. Think of gas or electric companies. You wouldn’t want ten different companies with wires to your house! In order to continue the service without interruption, it may be necessary to create the GBE.