Most of the countries in the world nowadays have mixed economies. It means that these countries have both have private-sector business organization and public-sector business organizations.
In the private sector of the economy, all businesses are owned and controlled by private individuals, groups of individuals or other private businesses, for example Coca Cola, P&G, General Electric (GE) or IBM.
In the public sector of the economy, all businesses are owned, controlled and operated by the government, for example China Baowu Steep Group, the world’s largest steel conglomerate, China State Railway Group (CRRC), China’s largest bullet train maker, or the UK’s BBC (British Broadcasting Corporation).
The proportions of the private sector compared to the public sector are different in different countries and fluctuate over time.
In countries with a mixed economy dominated by the market forces, most business activity is in the private sector. These economies follow ‘a free-market system’ where public sector is very small and most of the economic resources are owned largely by the private sector. There is very little government intervention in markets.
In countries with a mixed economy dominated by the central planning of the economy, most business activity is in the public sector. These economies follow ‘a command system’ where private sector has very few businesses and most economic resources are owned, planned and controlled by the state. There is a lot of government intervention in markets.
Let’s take a look in details at business activity in the private sector and the public sector.
In the Private Sector
The private sector is owned and controlled by individuals and other businesses (yes, that is true that companies also own other companies). Private-sector businesses exist primarily to generate profit for the owners. Therefore, businesses only produce the products that consumers need or want to buy, if they can make a hefty profit from doing so. It is the private businesses and their owners who decide the best way of producing their goods and services based on consumer choices that help businesses to decide what and when to produce.
Businesses in the private sector always try to lower their costs in order to make a bigger profit when the products are sold to consumers. Profit is the positive difference between a firm’s sales revenue earned from selling products and its costs (various spending).
The goods and services produced by private sector businesses will only be bought by those people who have enough money to pay the price charged, for example only rich families can afford to send their children to expensive private international schools. Other consumers who are not be able to afford to buy those products that they want because they do not have enough money, will not purchase from businesses in the private sector as products are too expensive.
Businesses in the private sector will differ in size ranging from sole traders and small partnerships to large multinational public-limited companies operating in almost every country on earth.
In the Public Sector
Business organizations that operate in the public sector are under the ownership and control of the government. It is the government/the state who makes all decision what and when to produce, for whom to produce and how much to charge. These decisions are not based on maximizing earnings for the owners, but based on the needs of the general public to benefit the whole society.
Public-sector organizations in many countries provide good-enough-quality products that are essential for living such as healthcare (public hospitals), education (public schools) and defense (military). All people in the population also need water, electricity or gas.
Also, government-owned businesses provide those necessary goods and services because as they would be under-provided or inefficiently provided by the private sector – it would be difficult for a private-sector organization to make a decent profit.
In some cases, the goods and services provided by the public sector are for free (primary and secondary education or bus rides for old people) or at a lower price (low-priced entry tickets to public parks versus expensive entry tickets to amusement parks operated by Disney).
In general, goods and services provided by state-owned enterprises are sold to those consumers who do not have enough money to buy those other goods and services from private-sector companies.
