We explain what the private sector in the economy is, 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 companies and corporations whose capital is majority in the hands of private investors .
The private sector is a very important economic actor in the vast majority of socioeconomic systems (with the exception, of course, of the communist one), and is generally responsible for employing the largest percentage of a country's population.
At the same time, private companies can develop under very different legal and legal modalities, depending on each national legislation, so they may have different obligations and freedoms.
Therefore, the private sector You can engage in practically any economic activity that the law allows that is, to the production, distribution and marketing of all types of goods and services. In addition, companies can be of different sizes, from large corporations with multiple headquarters, to SMEs (small and medium-sized industries) and family businesses.
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 the “productive sector” as an alternative. The drawback of this last term is that many production companies can be public (state-owned) or mixed-owned.
Characteristics of the private sector
Fundamentally, the private sector is characterized by the following:
- It is not under direct control of the State . That is, it is private property.
- 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.
- Pursue the mission of satisfy some type of need of part of the population such as producing in-demand goods, or marketing services of different types.
- The specific operating rules of the sector the obligations that companies contract and their way of operating financially may vary from country to country 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 go from the public to the private sector or vice versa:
- Privatization a process in which a state-owned company is disposed of or sold to private investors.
- Nationalization or nationalization a process in which the State forcibly purchases 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 deal with different audiences .
Public companies can afford the luxury of low competitiveness, since the State will be behind them to protect them; while the private sector must strive to acquire and retain its public. This is why public goods or services are usually cheaper than those produced privately.
References
- “Private sector” on Wikipedia.
- “Public sector” on Wikipedia.
- “Private sector, a name in danger of extinction” in the newspaper La República (Colombia).
- “What is the Private Sector?” in The Business Professor.
