Public Sector vs. Private Sector: 11 Key Differences

When talking about how a recession affects the private and public sectors, both are often brought up.

But what do these phrases really mean? They are used to compare different kinds of businesses and how they work in the economy of the United States.

Businesses that make money are usually part of the private sector, while government agencies are usually part of the public sector.

Find out how the private and public sectors work, why they are important, and a lot more.

What is the Public Sector?

The term “public sector” refers to corporations, businesses, and other organizations where the government owns most of the company. These businesses are owned, run, and managed by the government.

Companies that are owned, controlled, managed, and run by the government or government bodies are part of the public sector.

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What is a Private Sector?

Companies, enterprises, or businesses in the private sector are owned by private individuals or private corporations. Firms in the private sector are run, managed, and owned by private people and organizations.

Businesses in the private sector are owned, controlled, managed, and run by private companies and individuals.

Public Sector vs. Private Sector

How Do the Public Sector and Private Sector Work? 

Countries’ economies, like the U.S.’s, are split into public and private sectors (or divisions) to keep track of economic activity and how it affects domestic production (the GDP).

In the United States, there are a number of agencies that keep track of and report on what is going on in both the public and private sectors.

For example, the Bureau of Labor Statistics (BLS) reports on market activity, working conditions, and changes in prices in the economy. The United States Census Bureau, on the other hand, gives information about the country’s population and economy.

How the Private Sector Works

The private sector is made up of households, businesses, and organizations that work in many different fields, such as retail, construction, and manufacturing.

There are both public and private companies in this industry, from Walmart and Amazon to small mom-and-pop stores.

Because private-sector businesses are owned and run by private individuals or groups, they are focused on being entrepreneurial and taking risks to create jobs and make money. They are competitive and want to get things done quickly.

How the Public Sector Works

The “public sector” is made up of all organizations that are owned by or connected to the government. This includes the federal government, state governments, and local governments.

Public-sector institutions include education, security, safety, welfare, the law, natural resources, public transportation, infrastructure, food security, social housing, health care, and health care.

Federal agencies like the IRS, FBI, and Department of Labor are part of the public sector. So are state services like unemployment benefits, police departments, fire departments, services for children and families, insurance, financial services, and medical regulation.

In practice, the Bureau of Economic Analysis and the Federal Reserve Board use public-sector statistics to evaluate the country’s financial and economic health, while local and state governments use the data to create budgets and programs.

Note

Some government agencies act like “corporations” when they do business.

Congress requires these agencies to ensure that public services are provided at market rates and that income and expenditures are balanced.

The Federal Deposit Insurance Corporation and the United States Postal Service are two examples (FDIC).

How Nonprofits Work

Nonprofits are often put in a category separate from the public and private sectors. This category is sometimes called the nonprofit sector, the third sector, or the volunteer sector, but it depends on the organization.

People often think of nonprofits as part of the public sector because they use public resources like volunteers. 6 But when it comes to their jobs, the BLS says they work in the private sector.

Non-governmental organizations, or NGOs, are groups or institutions that are not run by the government and have a social goal.

There are international organizations like the Red Cross and Doctors Without Borders, as well as local organizations like churches, that are not for profit.

Public charities and private foundations are both types of non-profit groups. Public charities like the United Way and Community Foundations do charitable work, and private foundations give money to public charities.

The public does not give money to private foundations. The Bill & Melinda Gates Foundation is a private organization that helps people.

Key Differences Between Public Sector and Private Sector

BasisPublic SectorPrivate Sector
DefinitionPublic Sector refers to the part of the Country’s overall economy which is controlled by the Government or various Government bodies.The private Sector refers to the part of the Country’s overall economy which is controlled by Individuals or Private Companies.
OwnershipPublic sector companies are owned and managed by Government/Ministries/State Govt./Govt. BodiesPrivate sector companies are owned and managed by Private Individuals and Private Companies.
Primary Purpose Generally, Public Sector entities are driven by the purpose of providing the basic public services to the common public at a reasonable cost in their respective industries by being also self-sustainable and profitable. However, profitability is not the primary motive.The purpose of Companies in the Private Sector is profit-making by operating within the rules and compliances of the respective country.
Industry FocusPublic sector companies mostly operate in industries such as Water, Electricity, Education, Oil & Gas, Mining, Defense, Banking, Insurance, Agriculture, etc.Private Sector companies generally operate in multiple industries such as Technology, Banking, Financial Services, Manufacturing, Pharmaceuticals, Real Estate, Constructions, etc.
Financial Support from GovernmentCompanies in the Public Sector get all possible financial support from the Government even in adverse circumstances wherein the financial health of the companies is not good.Very little or no financial support from the Government unless a private entity is too big and systemically important for the Country.
Listing in Stock MarketsEntities in Public Sectors are publically traded on exchanges.Entities in Private Sectors are publically traded on exchanges.
Profitability Companies in the Public Sector are relatively less profitable because of their primary purpose of not being profitability driven.Companies in the Private Sector are relatively more profitable than their public sector counterparts in the same industry.
Government InterferenceSince Public Sector companies are owned by the Government, therefore they are subject to the uncertainties related to unfavorable Government decisions and larger Government interference.Private Sector entities are relatively less exposed to Government interference.
Ease of Doing BusinessPublic Sector companies find it relatively easy to operate in a country because of its proximity to the GovernmentPrivate Sector companies find it relatively difficult to operate and manage the regulatory issues and compliance in a country in comparison to Public Sector companies
Resource Mobilisation (Funding)Better placed to raise funds from the market because of backup by Government irrespective of the company’s financial health.It depends upon the financial strength of the private sector entity—stronger the financials, better capacity to mobilize funds from the market.
Work Culture for EmployeesRelatively relaxed work culture with higher job security. However, pay and perks may not be that attractive in comparison to private sector companies.Competitive work culture with performance-based career growth and better pay than public sector companies.

Public Sector vs. Private Sector Examples

Public Sector Examples

  • Education: School, College, Universities, and other educational institutes.
  • Public Transit: Subway system, Bus Network, Metro Line.
  • Housing: Construction, Housing Development, Implementing building, reliable homes.
  • Healthcare: Public Hospitals, Clinics, and other healthcare locations.
  • Others: Public Roads, Clean Water, Electricity, Justice, Law, Military.

Private Sector Examples

  • Sole Proprietors: Developers, Plumbers, Repairmen, Designer.
  • Small Businesses: Food, Leisure, Hospitality, Retail, Legal Services.
  • Large Multinationals: PepsiCo, Disney, Apple, Tesla, Procter & Gamble.
  • Professional Associations: American Management Association and Canadian Institute of Management.
  • Others: Law Firms, Hospitality, Newspaper and Magazines, construction, information technology, etc.

Public Sector vs. Private Sector

Public Sector vs. Private Sector Similarities

The public and private sectors are alike in the following ways:

  • People who want to move up in their careers can find work in both the public and private sectors.
  • Both care for their customers. In the private sector, customers are people who agree to pay for services. In the public sector, on the other hand, customers are citizens.
  • Both the private and public sectors are open to new technologies and changes in the way people work.

Public Sector vs. Private Sector Pros and Cons

Pros of Public Sector

  • Job security is a big worry for workers today, and the public sector can help with that.
  • There are a lot of benefits to working in the public sector, like retirement plans, paid time off, health insurance, and allowances.
  • If you work in the public sector, you may also be able to get a loan with better terms.

Cons of Public Sector

  • It can be hard to run a public sector because important decisions often require multiple meetings with government officials, which take time.
  • Some parts of the government are very expensive to run, so prices for goods and services are very high.

Private Sector Pros and Cons

Pros of the Private Sector

  • Employees in the private sector can get paid more, get bonuses every year, and have more chances to move up.
  • The private sector pays out more money than the public sector does. Because its employees work hard, a small business may have a lot of customers.

Cons of Private Sector

  • There is no job security in the private sector. In the private sector, letting someone go doesn’t take long.
  • In the private sector, workers don’t get benefits like retirement or extra money.
  • People who work in the private sector have to work harder because companies only care about their customers and profits.

Public Sector vs. Private Sector

FAQs

Is A School A Public Sector?

Both public and private schools are out there. The government runs and pays for public schools, but private schools are run and paid for by the students’ tuition or by a private person.

Conclusion

The public sector is different from the private sector because of how it is owned and why it exists. Both public and private businesses are important to every country’s economy and coexist in it.

There are some fields where it makes sense for the government to take over and keep an eye on the companies. The government owns and runs industries like defence, where many things are important for the security of the country.

The private sector makes up a big part of the economy of any country, and in recent years it has become involved in almost all businesses and industries at many points along the value chain.

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