- What is the private sector?
- Characteristics of the private sector
- Relationship between the private sector and the public sector
We explain what the private sector is in the economy, its activities, characteristics and its relationship with the public sector.
What is the private sector?
The private sector, private initiative or business sector is known as the set of economic-productive enterprises for profit, which exist outside of direct state control, that is, they are not part of the public sector.
In other words, this sector includes the Business and corporations whose capital is mostly in the hands of private investors.
The private sector is an extremely important economic actor in the vast majority of socioeconomic systems (with the exception, of course, of the communist), and is generally responsible for employing the largest percentage of a country's population.
At the same time, the private businesses can be developed under very different juridical and legal modalities, depending on each legislation national, so they may have different obligations and freedoms.
Therefore, the private sector can engage in virtually any economic activity that law allows, that is, production, distribution and marketing of all kinds of goods and services. In addition, companies can be of different sizes, from large corporations with multiple locations, to SMEs (small and medium industries) and ventures relatives.
According to some authors, the term "private sector" has the disadvantage of suggesting that this economic activity seeks to take over something that ordinarily belongs to everyone, and they propose "productive sector" as an alternative. The drawback of this last term is that many production companies can be public (state ownership) or mixed ownership.
Characteristics of the private sector
Fundamentally, the private sector is characterized by the following:
- It is not under the direct control of the Condition. That is to say, it is private property.
- It carries out economic activities of various kinds (production, distribution and/or marketing), within the framework of what is established by law.
- It is made up of large, medium and small companies, which may be in the hands of a few owners or a group of investors who acquire shares of the company in exchange for capital.
- It is for-profit, that is, its activities have the ultimate intention of producing wealth for its owners and investors.
- It pursues the task of satisfying some type of need on the part of the population, such as producing demanded goods, or marketing different types of services.
- The specific rules of operation of the sector, the obligations contracted by companies and their way of operating financially may vary from one country to another, depending on the legal system on the matter.
Relationship between the private sector and the public sector
The public sector and the private sector of a country differ in the degree of control that the State exercises directly over their activities. In the case of the public sector, said control is total, while in the private sector it is null or minority.
However, there are dynamics that allow a company to move from the public to the private sector or vice versa:
- Privatization, process in which a state company is alienated or sold to private investors.
- Nationalization or statization, a process in which the State forcibly buys a company, taking charge of it and adding it to the public sector.
Both processes have detractors and moments in which their application is justifiable.
On the other hand, the public and private sectors can compete in certain productive areas, but generally they are in charge of different audiences.
Public companies can afford a low competitiveness, since the State will be behind them to protect them; while the private sector must strive to acquire and retain its public. That is why public goods or services are usually cheaper than those produced privately.