Public sector economics - University of York

Central government is responsible for controlling and managing the public sector, which exists to meet the needs of the general public and to improve both their lives and wellbeing. Funded by taxpayers, it’s a broad sector of the economy encompassing education, healthcare, social welfare, infrastructure, emergency services, public transportation, government agencies, law enforcement and national defence, as well as all manner of other public goods and services.

Public sector size and scope is largely dictated by the economic and political systems that exist in a given country, and so public sector goods and services can vary considerably between different countries. Its organisations and businesses are not profit-driven – they simply aim to provide essential products and services to the people. One of its overarching aims is the redistribution of resources to minimise economic and social inequalities, for example through social programmes, social security and welfare initiatives, and progressive taxes.

What are the main differences between the public and private sectors?

There are numerous similarities and differences between the public and private sectors. Here is a comparative snapshot of some of the most clear-cut disparities.

Aims

Meeting the needs of the population – and enhancing their overall quality of life – is the primary aim of the public sector. While private companies who provide similar services may have various aims, their main driver is profit.

Finance and funding

Most enterprises in the public sector are funded via public taxes such as income tax and national insurance. In contrast, private sector enterprises must generate their own financial backing – for example, by gaining venture capital or investment, or through the sale of their goods and services.

Ownership

Private sector firms – which number around 5.5 million – are privately owned, either by firms or individuals, and operate in the free market. They have no link to central or local government and are owned by non-governmental entities. State-owned enterprises, public bodies and businesses are owned by the government.

Service range and availability

Public goods and services do not offer as wide a variety of options as private businesses are able to, although there is much crossover in terms of the industries found in both sectors.

Public-Private Partnerships (PPPs)

PPPs are a method through which governments can procure and implement public goods, services and infrastructure using the expertise and resources of private sector companies. For example, incentives for PPPs include where efficiency needs to be improved or facilities are outdated, private organisations can support with finances, technology, labour and fresh ideas and solutions.

What are the pros and cons of the public sector?

The public sector is understandably complex. Meeting the needs of a diverse, multi-generational population who may live very differently is no easy task. As such, there are several advantages and disadvantages associated with it.

Advantages of the UK public sector include:

provision of vitally important services – such as education, transportation and healthcare – to every citizen, regardless of social standing, income or other demographic
its responsibility and efforts related to developing, maintaining and stimulating economic growth, economic development, and stability
employment for millions of people and greater job security than the private sector
the charities and non-profits found within the sector that are committed to addressing social issues such as prejudice, inequality, mental health and poverty.

Disadvantages of the UK public sector include:

bureaucracy and processes that result in inflexibility, slow response times and an inability to pivot to changing demands
exposure to stringent monitoring and restrictions that are barriers to operational efficiency
a lack of creativity and reluctance to change, particularly in comparison to the fast-paced, innovative private sector
exposure to political will and intervention that lead to politically driven, as opposed to practical, decisions
criticism of government spending, budget inefficiencies, and misuse or waste of taxpayer money.

Is the public sector or private sector better for job creation?

Job creation is generally more prolific in the private sector – a result of its ability to offer employment in areas of high demand, and the sector’s flexibility in responding to real-world market trends and customer preferences. Across both sectors, much overlap exists in terms of available industries and job types. However, private sector jobs far outnumber public sector jobs and, as such, greater employment opportunities are found in that sphere.

Both sectors play an important role in terms of employment and job creation. While the private sector is well-positioned and efficient regarding job creation, government spending has greater size and scope.

The private sector is also critical to a nation’s broader development strategy, and is free to grow and develop as it has thanks to government spending on key products and services such as healthcare, infrastructure, education, research, and financial services. In the context of a stable macro-economy, private enterprises can invest, innovate, trade and increase employment.

What is privatisation of public services?

The Institute for Government defines privatisation as the ‘the sale of publicly owned assets to private investors [who] take on responsibility for operating, managing and investing in the assets – and providing any services that derive from them in return for a fee from users.’ Some common examples of privatisation in the UK include rail networks, mail services, and public utilities such as water, energy and telecoms.

Recently, there have been concerns that other public organisations – most notably the National Health Service (NHS) – may become privatised. For many citizens, this raises worries about access to vital services and the ongoing quality and maintenance of such services.

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