Private & Public Sector Businesses (SL IB Business Management)

• It is useful to classify firms into categories so that we can make comparisons between them
  • Public or private sector?
  • Legal ownership?
  • Sector of industry? (See Section 1.1)
  • For-profit or non-profit?

 
Public and Private Sector

• Public sector firms are owned & controlled by the Government and usually funded through taxation
• Private sector firms are owned & controlled by other firms & private individuals (entrepreneurs and shareholders) and are usually funded by owner's capital, borrowing and retained profits
• Privatisation occurs when government-owned firms are sold to the private sector
• Many government owned firms have been partially privatised
  • The government retains a share in them so they can influence decision-making & receive a share of the profits e.g. the shares of Singapore Airlines are 55% government owned & 45% privately owned 

 

Public Sector Firms

Private Sector Firms

Their main goal is usually to provide a service Public sector firms can operate on a local, regional or national government level E.g. Transport for London (local);  Agricultural State Service in India (regional); Caribbean Airlines (national) Governments are likely to retain ownership of  organisations in the public sector for several reasons They are strategically important to the country  E.g. defence or justice systems They provide essential services E.g. water or electricity supply They are merit goods that may not be provided in sufficient quantities by private businesses E.g education or health services

The objective of most private sector organisations is profit maximisation This often causes the private sector to be more efficient than the public sector with higher levels of productivity Types of business ownership vary from sole trader to partnerships to company shareholders Former public sector businesses (privatised) have become some of the largest companies in many economies E.g. British Telecom Plc is one of the FTSE 100 leading companies in the UK Air India, the country's national airline, was privatised and sold to Tata in 2021 as the Indian government seeks to reduce its commercial involvement in the economy

 

• In recent decades Governments around the world have tended to move away from the centralised provision of services
  • In Cuba small private sector businesses are now encouraged, although a large proportion of workers remain employed directly by the government
  • Political change in Venezuela has led to a rare example of an increase in the involvement of the state in the economy