Question

Can the public sector companies compete with the private sector in terms of profit and efficiency? Give reasons for your answer.

Answer 1

No, the public sector cannot compete with the private sector in terms of profit and efficiency. This is because the private sector is usually more efficient and earns more profit than the public sector. The following points make the reasons clear.

(a) Profit motive: Profit is the prime objective of private sector industries. This motive is achieved by choosing those combinations of capital, labour and other inputs that minimise the business costs. Further, these companies have various research and development centres which come up with new technologies to minimise the costs. However, in the case of the public sector, profit is not the only important objective. Besides profits, it is the welfare motive that normally drives the public sector. The prime objective of the public sector is to produce goods and services that enhance the well-being and welfare of society. Moreover, PSEs make their goods and services available to consumers at a nominal cost, in order to keep them within the reach of the poor.

(b) Efficiency: An organisation is said to be efficient when it uses optimum amount of inputs at low costs to produce a given amount of output. As private sector industries have structures to ensure quick decision making, they set their goals in a manner such that the efficiency targets are met well on time. This is because, in private industries, the management keeps a constant eye on its employees, which helps check inefficiencies and reduce wastages. In public sector industries, on the other hand, the decision-making process is slow and rigid. This is because of the numerous procedures that employees have to follow, which slow down decision making and affect the overall efficiency of the industries. Moreover, public sector industries are slower to adopt new and efficient technologies, and consequently, they lag behind private sector industries.