Private & Public Sector Businesses (DP IB Business Management)

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Flashcards

Private & Public Sector Businesses

  • 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 sectors

  • 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

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