Private and Public Sector Administration
Globally, the public and business administration play very critical roles in enhancement of economic development and participation. Public administration entails management of the public resources, utilities and service delivery, and the process may encompass both profit and non profit motives. On the other hand, business administration, conventionally, relates to management of entities and service deliveries specifically with profit motives. Therefore, multifaceted differences and deviations in objectives exist in relation to public and business administration.
These differences are exhibited in terms of objectives and the core functions of public and business administration. Public and business administration can be compared in terms of financing and raising of finances, assets ownership, functions and their recruitment methods for the staff. Based on comparative analysis, it can be argued that public administration is largely not profit inclined and the payers are driven by the need to provide public goods irrespective of cost implications, while the overall accountability is to the citizens. On the other hand, business administration is profit oriented with recruitment of staff that is accountable to the management and owners being done competitively. While the sources of finances used public administration are contributed by the exchequer, the funds used in business administration mainly come from equity capital. However, in both public and business administration, the routine duties such as promotion, training, assets management and communication are carried out in a similar manner.
Differences between public and business administration can be looked at in terms of the major aim of both parties’ participation in the business environment. Normally, the government seeks to act in neutrality in the economy. At the same time, the government seeks to ensure that the businesses are run smoothly without undue disruptions or exploitation. This way, the government’s major aim is to ensure stability, and creation of employment, wealth and high living standards. However, the prime objective of business administration is to ensure that there is maximum spread between revenue and costs. It is therefore a primary objective of business objective to ensure that profits earned is maximum.
The objectives of all firms in the market economy are to maximize profits. Every firm strives to obtain the highest possible level of profit through effective production and sale of produced goods and services. The assumptions behind the concept of profit maximization have been adopted by production firms as a guiding principle in the market economy. Profit maximization is a principle that business firms employ when determining the best output and their respective prices in order to attain maximum returns. For firms to achieve maximum profits from the inputs, they have to adjust major influential factors such as sales prices, production costs and the levels of output.
In order to determine the price and the output level which leads to greatest profit, business firms employ Marginal Cost-Marginal Revenue and Cost-Total Revenue Method (Mankiv, 315).Difference in objectives also comes about due to possibility of the private sector to exploit the public in pursuit of the profit goals. Profit maximization can have adverse effects on the consumer especially if companies use cheaper products or raises prices for the products. Under monopolist market economy, business firm can determine the level of output that results in maximum profits by equating its marginal revenue with its marginal costs, and this condition is used by business firms in perfectly competitive market to ascertain their equilibrium level of output. Regardless of the market structure, business firm adopt the condition that its marginal revenue is equal to its marginal costs (Mankiv, 315). Under monopolistic markets, firms can only determine the level of output that maximizes profits if they have relevant information about product demand in the market and the cost of productions.
Based on the above analogy, the differences between public and business administration exist in terms of the goals of the parties. While public administration seeks to protect the customers from exploitation, the business administration seeks to maximize profits.The differences between public and business administration may also be looked at the level of participation of the two parties. The aim of business administration is to invest and earn returns in a stable environment. As such, the business administration calls for identification of opportunities and creating products that suit the market. However, public administration calls for protection of the business environment as well as ensuring the private sector do not act outside the laws such as investing in sensitive industries like nuclear power generation.
To ensure smooth economic activities, government has to chip in. The interactions between people and the firms in the market have to be regulated, a duty undertaken by the state. The government regulates business activities through general laws, for example, law of contract. People enter into business agreement as they engage themselves in commercial activities. These businesses agreements/contract are bound by the laws of contracts stipulated by the court of law.
These ensure that the parties to the business contract abide by the terms and conditions of the agreement. Wade (38) claims that the judicial arm of the government enforces civil laws which stipulate the right and responsibility of people in relation to each other. Critically, civil laws have the effect of creating favorable economic environment where citizens so that people can carry out their business transaction with minimum problems. As a regulator of business activities and the general economy, the government established generic rules and regulations such as Fair Trading Act, Partnership Act and Companies Act. There are also specific regulations which govern individual markets in the economy, for example, Banking and Finance Laws, Dairy Industry Restructuring Act.
In New Zealand, the court system through the judicial arm of the government passed Dairy Industry Restructuring Act which regulates and control operations of Fonterra. The central banks of federal states have important roles to play. Through monetary, the government maintains price stability in the nation economy, promotes the maintenance of effective financial system and to ensure that the currency needs of the public are met. The Reserve banks that have been established in most nations ensures that citizens transact their business activities using money (University of Wellington, 12). Commercial banks issue physical cash to the public who buy their cash from the Reserve Bank. To avoid price stability and economic fluctuations, the reserve bank ensures that government currency retains its strong buying power.
It also adjusts interest rates to meet the needs and demands of the investors in the economy. The government monetary policy also helps protect the value of citizens’ incomes and savings by delivering price stability. More importantly, through the monetary policy, the government sets a favorable economic environment against which businesses and private households can make the best choices for sustainable growth. Despite the disparities in the form and the scope of these regulatory laws, all have the purpose of improving the operations in the market economy and promote harmonious business activities (Wade 2009, 37).In countries where government regulations are not adhered to, consumers have been exploited by the business people.
It is the responsibility of the government to protect its citizens from exploited by the businesses by controlling monopolistic business combinations that intent to escape competition in the free market. Through antitrust laws, the government redresses citizens’ grievances about any known business fraud. In some extreme cases, business firms offer very dangerous products to the customers. People have died in some countries because of some less caring businessmen supply poison products. The government has an obligation of recalling any suspected dangerous products or services before it reaches the final consumer (Lee, 21).
Holistically, the government regulates both private and public business organizations’ activities so as to protect it are the health and the safety of its people. In United States, the government established U.S. Food and Drug Administration which monitors the entry of all drugs into the country’s market. The body bans any suspected harmful drug (America Government 2008, 2).The comparison between public and business administration can also be looked at in terms of financing.
There are certain financing mechanisms that are purely used in public administration. These include public borrowing and use of currency reserves. It is only in public administration where treasury bills and municipal bonds are used. Under business administration, there are also different financing mechanisms that cannot be used by the government. Under business administration, companies unlike governments can use short term credit arrangements which are normally renegotiable as the best source of finance for the working capital, especially inventories.
This is because it can meet the short term obligations as and when they fall due. According to GRA inventories alone, one component of working capital represents 30%-60% of current assets of many companies, a situation which requires retailers to ‘ turn inventories as quickly as possible whilst making a suitable margin’ (GRA,1). In times of credit squeeze and economic slowdown, working capital has been cited as the best source of finance which a retail business can effectively exploit. For example, research has revealed that internal finance based on optimized working capital is a more efficient financing arrangement in comparison to external finance (Roland,1). Stressing the importance of working capital management for a retail business GRA observes that it can be disastrous if a retailer doesn’t have the right product in the right place at the right time for the right price (GRA,1). However, to properly manage this component of working capital, it is of great importance that the business administrators regard accounts payables as financing arrangements which requires repayment.
As a result, a cost effective means of managing credit owed is required in a bid to minimize the related working capital management costs. One strategy is to ensure a proper mix and balance between the time credit is given and the expected time of payment. This however is possible as the firm can meets its financial obligations either after seven days or after two weeks because of its profit levels and favorable working capital ratio and liquidity ratio as well as ability to sell at relatively lower prices in comparison to competitors.Secondly, companies unlike the government can take commercial bank loans for expansion purposes. Such long term sources of finance can be used to acquire physical infrastructures and long term assets like plant, property and equipment. Also, the companies can take both medium and short term loans (in form of overdrafts) to meet the required financial commitments.
Because of the high performance and profitably of the company, the bankers anticipate that company will be able to service the loan by meeting both the short term obligations (the periodic interest payments) and long term obligations (the principal amount). Differently, the government financiers such the bond invertors and aid organization like IMF peg their claim on low risk-ness of government loans and little chances of default.Thirdly, the companies unlike the government can go public and float shares in the capital market to raise the funds needed for expansion. This form of financing is suitable for the companies as it can attract more investors due to strong financial background, high profitability ratio and promise of future returns in form of dividends and capita gains which would be raised from sales in the newly developed stores/branches and new market niches. The competence of the manger would be critical in the time of floatation, issue of prospectus and attraction of investors owing to the managerial competence.
Similarly, the government can sell its stakes or shares in companies to raise funds. The most common form is IPOs. Initial Public Offers has been a common trend in many countries as the trend changes in public financing. Change is also brought about by emergence and popularity of privatization.Fourthly, under business administration, companies can use retained profits to raise finances internally.
Through the retained profits, they can raise finances in two ways. One approach is through the differences between the earnings made in terms of the profits and the profits’ ratio/volume given out to the owners of the equity capital. Two, the companies can use the funds arising from the allowances for depreciation/ wear and tear to generate funds needed for the expansion and growth i.e. hidden form of self financing.
However, the government is not a profit making entity and cannot rely on profits as a source of finance. Similarity however exists in terms of state corporations which make profits and transmit the money to the treasury.Relationship between public and business administration can also be looked at in terms of perpetuity and life span of management. While both forms of management are based on the notion that the entities would continue perpetually, differences exist in relation to termination of the existence of the bodies. The question relates to bankruptcy rules in public administration, Bankrupt government is not able to borrow funds from the international financial institutions and capital markets and pay its employees. There will be lack of investor confidence in the economy resulting into capital flight, retrenchments and sharp fall in foreign direct investment and foreign reserves.
The local currency will depreciate in value due to low demand in foreign exchange market resulting into reduced confidence in the currency as a legal tender and fall in imports due to resultant losses faced by international traders. Depletion of the foreign exchange reserves may ruin the economy resulting into un-lawlessness and emergence of pronounced barter trade.A function that is becoming more similar in both public and business administration is Human Resource management. Today, both entities find it beneficial to set up a high-quality division to present an expert service dedicated to ensuring that the human resource function is performed resourcefully. As such, Strategic Human resource management is being practiced widely in both public and business administration.
Distinctions however come in terms of Performance Appraisal. Performance Appraisal is the process of assessing the performance and progress of an employee or a group of employees on a given job and his / their potential for future development. It consists of all formal procedures used in the working organizations to evaluate personalities, contributions and potentials of employees. In public administration, Performance Appraisal is rarely taken seriously and mainly summative. This is because of the bureaucratic nature of public administration where accountability to the public is rarely valued . Differently in business administration, Performance Appraisal is both summative and continuous due to emphasis on results and need for accountability to the management In many public organizations HRM has not been at par with the private sector.
Employees largely remain undervalued, under skilled and underutilized. Also, judicial labor relation exist as “job security is [higher in public administration as] compared to private sector” (Steijn, 2)However, there are certain sharper changes which are emerging in public administration such as competitive recruitment. A sharper distinction that is fast becoming a norm in public administration is the need for vetting of top public appointments as opposed to the private sector. Such vetting are normally carried out by the legislative bodies or advisory boards.Today a major shift (direction of change) has been witnessed in many industries with the emergence of more, private organizations that offer services that were deemed preserve of the public system .
For example two parallel organizations have emerged in health care, profit and not for profit hospitals. For profit hospitals refers to the health care institutions which are owned by an individual, group or institutional investors whose main objective is to maximize the net worth of the investors through provision of quality health care and cancer management to the clients. Examples of these hospitals include the Hospital Corporation of America, and the Tenet.In contrast, non profit hospitals are driven by the quests of service to humanity and are mainly supported by government institutions, charitable organizations, donors and foundation funds. The proceed s of the non profit cancer management hospitals are never distributed to individuals as the case with the for profit hospitals.
Instead, the revenues generated by the facilities are normally reinvested in expansion programs, medical assistance to poor cancer patients, research and development and general service to the community.Several arguments have been put forward in attempts to justify the existence of, and the major roles played by both the not and for profit organizations. First, the proponents of for profit initiatives argue that the management of these facilities is normally very professional and devoid of bureaucracies and complexities in management that are common among the public entities like hospitals. As such, these organizations are able to offer superior and customized care services at relatively affordable costs. The argument is reinforced by a belief that the managerial pressures to deliver justifiable results and accountability to the investors ensure efficiency and completive service delivery. However, this argument is negated by the research finding by Shapoori and Smith (1) which indicate that the “hourly rate for all workers in profit hospitals, 19.
26 dollars, was found to be lower than the average hourly rate for all workers in nonprofit hospitals, 20.16 dollars.” This gives an indication that the incremental benefits and revenues generated by for profit cancer care hospitals go to the investors and not the other stakeholders like employees. This reality may be catastrophic especially if employees know this fact and may feel disillusioned and equally ill motivated to give quality health care needed in cancer management. at the same time, on average , the ‘for profit have higher mortality among elderly patients’, the major cancer sufferers.
Not for profit cancer care hospitals however have been praised as being very responsive to community welfare and do not seek to exploit a situation for financial gains. Consequently, the not profit hospitals management normally “spend all the tax dollars provided to their institutions on health care delivery”, and not to maximize their profits (Guyyat, 2).The for profit cancer care hospitals are believed to have emerged due to the mission by the investors to respond to the market needs and develop their business concepts in line with the profitable product lines. Since cancer treatment and management is very costly and normally attracts a lot insurance policy contracts, the for profit cancer care hospitals normally invest a lot of resource in this sector in a bid to recoup more returns on investment. This entrepreneurial spirit is fully legal, and allowed by the society, though controversy arises as to whether health conditions and poor health status warrants a business opportunity, ethically and socially. The for profit making hospitals have been castigated as entities which prefer the lucrative and high returns cancer management as it requires long term management and ease of monitoring the progress of the patients as compared to less profitable emergency medical services offered by the not for profit institutions.
In different economic settings, there are certain government functions that in one way or the other emulate business administration practices. These functions can be looked at in terms of the roles of the government in business and how such roles marry with the conventional business practices. In all economies, the Government acts as a tax-gatherer/ collector as a means of getting revenues to meet its budgets. Similarly, it is a typical business administration function to apply resources ostensibly to earn revenues. The principle of debt collection and revenue generation in the business world can be likened to tax collection by the government. The government requires money to undertake its development programs such as transport and communication, health, education and tourism among others.
Furthermore, the government requires money to pay its debts. Through its agencies and government structures, the state collects revenue in form of taxes every year. Taxes are potent instruments because it affects the economical behaviors of the people in the country. Economic research indicates that government affects the amount of savings and investment in the economy when it imposes taxes. When government imposes tax on its citizens, it affects how much they work, the time they can spend their incomes or savings. In some economies, government tax systems are effective hence do not adversely affect how people spend in the economy.
For example, Organization for Economic Co-operation and Development (OECD) rates New Zealand’s tax system as the most effective (Victoria University of Wellington , 13). Comparatively, tax imposition by the governments to earn revenue is similar to business administrative duty of revenue generation while the regular adjustments of tax rates that affect the tax payers is like the pricing strategies by the private sector that have an effect on demand and level of consumption.It is a business administrative function to ensure that an organization owns substantial amount of assets that can cover its debts and ensure that it is not exposed to such risks as threats of hostile take over. Put differently, businesses own assets that are used in operations and income generation. It is therefore a business administration function to ensure that an entity has adequate assets at all times, which are used prudently.
Similarly, the government owns many assets such as land, building and farms that are used in the process of service delivery and income generation. According to (Langoulant, 3), most assets are owned by national governments. Some of the physical assets include health institutions, schools, military equipments, government offices, police stations and reserved land. Government also owns businesses especially in the air, port and tourist industry. The State-Owned Enterprises (SOEs) are business entities own and operated by the governments in highly commercially manner.
In most cases, government physical assets such as schools and hospital serve as social purposes i.e. they are not operate for profit. The most of the services offered in the government institutions are subsidized hence the public benefits directly. These helps eradicate exploitation of the private investors.
Through these services offered by these social institutions, the government indirectly regulates personal spending of income and savings (Wade, 37).Service provision and exchanges form a major business administration function. It is the duty of administrators in a firm to ensure that products and services are offered professionally and timely. This is normally carried out by the marketing and sales departments. Similarly, the government provides wide-range of goods and services to its citizens either directly or indirectly. Direct provision includes education, security through the state police force, health services as these are available in the state state-owned bodies such as schools and health institutions.
Indirect provisions are availed to the citizens through non-governmental organizations. The government spends a lot of money annually in transfer payments and direct provision of income through direct employments. In some developed countries, the government provides unemployment, domestic purposes and retirement benefits to citizens who cannot actively participate in the economy (Wade, 37). As business organization the government markets its services through such forums as exhibitions, use of media and publicity.