A quasi-public corporation is a unique entity in the private sector, supported by the government to provide essential public services. This article delves into what quasi-public corporations are, how they work, and their significance in today’s economic landscape.
What Is a Quasi-Public Corporation?
A quasi-public corporation is a privately operated company backed by government support to fulfill a public mandate. Examples include telecommunication companies, utilities like water and electricity, and various infrastructure organizations such as those in oil and gas sectors and irrigation systems.
Quasi-public corporations can be founded from scratch, arise from privatized government agencies, or evolve from private companies that become partly nationalized. They are often called public service corporations due to their mission-driven focus.
Key Takeaways
- A quasi-public corporation is a private company supported by the government with a public mandate to offer certain services.
- These corporations often receive partial government funding to maintain their operations.
- Their primary objective is to fulfill a public mandate rather than maximize shareholder claims and profit.
- Investments in quasi-public corporations aren’t immune to risks despite governmental ties.
How Quasi-Public Corporations Operate
Created to benefit the public, like libraries and elderly care centers, quasi-public corporations perform a government-chartered mission. These companies receive partial state funding in return for their public services.
Quasi-public corporations may range from public companies with commercial orientation, nationalized firms, to those predominantly held by public shareholders. These entities are perceived as policy instruments as they can operate more flexibly and cost-effectively compared to direct government-run institutions.
Important Note
Employees of quasi-public corporations, contrary to popular belief, are not government employees.
Government Funding Mechanisms
Quasi-public organizations may receive government funding to cover persistent operational deficits. Refunds are provided via regular fund transfers designed to compensate for operating losses due to policy-driven lower service prices below average production costs.
Examples of Quasi-Public Corporations
- Sallie Mae Corp.: It was founded to support student loan development.
- Fannie Mae (Federal National Mortgage Association - FNMA): Fannie Mae operates independently but under a congressional mandate to promote accessible and affordable homeownership.
Special Considerations: Investment and Public Perception
Shares of quasi-public corporations often trade on major stock exchanges, allowing individual investors to get exposed to the company and its profit potential. However, these shares prioritize the corporation’s public purpose over shareholder value creation.
The misperception that quasi-public entities are risk-free because they appear as government entities led to significant issues highlighted during the 2008 financial crisis. For instance, while Fannie Mae and Freddie Mac claimed no government guarantees on their debt securities, many investors wrongly asserted that they were implicitly backed, prompting government intervention during bankruptcy threats.
Related Terms: nationalization, privatization, public enterprises, public-private corporations.
