Private Sector

We explain what the private sector is in the economy, its activities, characteristics and its relationship with the public sector.

private sector
The private sector ranges from large corporations to family businesses.

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 in charge of 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 dedicate yourself to practically any economic activity that the law allows you, that is, to the production, distribution and commercialization of all kinds 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 possession of something that ordinarily belongs to everyone, and they propose the “productive sector” as an alternative. The drawback of this last term is that many producing companies can be public (state ownership) or mixed ownership.

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Characteristics of the private sector

private sector characteristics
The private sector seeks to produce wealth for its owners and investors.

Fundamentally, the private sector is characterized by the following:

  • Not under direct state control. I mean, it’s private property.
  • Performed economic activities of various kinds (production, distribution and/or commercialization), within the framework of what is established by law.
  • It is made up of large, medium and small companieswhich may be in the hands of a few owners or a group of investors who acquire shares of the company in exchange for capital.
  • is for profitthat is, their activities have the ultimate intention of producing wealth for their owners and investors.
  • Pursue the mission of satisfy some type of need of part of the populationsuch as producing demanded goods, or commercializing different types of services.
  • The specific rules of operation of the sectorthe obligations that companies contract and their way of operating financially may vary from country to countrydepending on the legal system in the matter.

Relationship between the private sector and the public sector

The public sector and the private sector of a country They 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 non-existent or minority.

However, there are dynamics that allow a company to move from the public to the private sector or vice versa:

  • privatizationthe process in which a state-owned company is disposed of or sold to private investors.
  • Nationalization or nationalizationa process in which the State forcibly buys a company, taking over it and adding it to the public sector.
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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 They usually cater to different audiences..

Public companies can afford 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.

More in: Public sector

References

  • “Private Sector” on Wikipedia.
  • “Public Sector” on Wikipedia.
  • “Private sector, denomination in danger of extinction” in the newspaper La República (Colombia).
  • “What is the Private Sector?” in The Business Professor.