The Importance of the Public & Private Sectors (Edexcel IGCSE Economics)

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The Relative Importance of each Sector

Most economies have a mixture of public and private sector provision of goods and services
The United States and Japan are have a smaller public sector than Norway, Germany or China
- The USA leans towards a free market economy
  - E.g Private firms often provide education and healthcare

Countries with a large public sector include Cuba and China
- The government exerts a high degree of control of key sectors such as banking, airlines, communications, energy production and manufacturing

Benefits of a Large Public Sector

Benefit	Explanation
Provision of goods and services	A large public sector makes it easier to provide public goods efficiently This ensures that essential goods and services are accessible to all citizens, contributing to overall standard of living E.g China invests heavily in public infrastructure projects and healthcare and education for its citizens
Employment	Many jobs are guaranteed by the state, providing employment In China, state-owned enterprises are major employers, offering job security
Reduce negative externalities	State control over key sectors allows governments to regulate and reduce negative externalities E.g Cuban government control over the economy enables it to regulate environmental pollution and ensure sustainable development practices

Comparison of Public Sector Sizes

The size of the public sector can be measured by considering
- GDP per capita spending on the public sector
- The number of employees per 1,000 of the population

Graph: Public Sector Employees by Country

Source: France stratégie

Graph analysis

Nordic countries, such as Norway, Denmark, Sweden and Finland have larger numbers of employees in the public sector
- This indicates that their government allocate a considerable amount of government revenue towards the provision of merit and public goods
- These countries frequently rank at the top of quality of life indexes, as result of their excellent education and healthcare systems
In contrast, the UK and USA have a smaller number of employees in the public sector
- This indicates that USA and UK government allocate less revenue towards the provision of merit and public goods
- USA and UK rank lower in quality of life indexes, reflective of less spending on education and healthcare
Countries like Norway prioritise the public sector and provision of goods and services
- Particularly in the provision of healthcare, educations and social welfare
Data would suggest that many countries with a larger public sector enjoy a better quality of life and its citizens are happier
- Usually, the larger the public sector, the higher the level of taxes
- This is one reason why capitalists and free market economists argue against having a larger public sector

Exam Tip

The material on this page is frequently examined in the Paper 1 structured questions. You will be asked to analyse a large public or private sector of a country in a given scenario. Consider how large public/private sector impacts the provision of public goods, employment and negative externalities

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