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What is a private sector?

Private sector definition

The private sector is usually referred to a part of a country’s economy, which is run by individuals and companies, rather than the governmental authorities. The majority of private sector businesses operate with a primary goal to make a profit. 

The private sector is opposed to the public sector, which typically works under governmental control. Non-profit organisations and charities are sometimes subdivided into a third segment, called the volunteer or third sector. However, very often these organisations are also considered a part of the private sector.

Where have you heard about the private sector?

In free economies, the private sector makes up a big part of the economy. Free enterprise economies presuppose relatively few government restrictions on businesses. These economies are opposed to nations with prevailing public sector and dominating government control over the economy. 

For example, in the United States of America strong private sector prevails, making up a bigger portion of the country’s free economy. In contrast, China has a larger public sector and continues to control many of its corporations.

What you need to know about the private sector.

The private sector is a significant segment of a country’s economy, which is controlled, owned and managed by private individuals and businesses. With a major goal to earn money, the private sector usually employs more people than the public sector. 

Private sector companies are created by establishing a new enterprise or privatising a former public organisation. A large private sector corporation may be also publicly traded. Private sector businesses compete for consumers’ money and drive down the prices for services and goods. 

In the developed countries, private sector businesses contribute a significant percentage towards the country’s total GDP

Private sector examples

The private sector enjoys a rich diversity of organisation forms, from small family businesses to multinational conglomerates.

Examples of private sector businesses include:

  • Sole proprietors
  • Partnerships
  • Small and medium businesses
  • Big international corporations
  • Professional associations
  • Trade unions

Although the state does not control the private sector, it is still regulated by the country's legislation. Any corporate entity or business operating on the country’s territory must conduct its activity under the laws of this particular country.

People employed in the private sector are usually paid from the company’s profits. They tend to have more frequent pay increases, greater variety of career choices, more opportunities for promotions, although less job security and less comprehensive benefit plans. A more competitive private marketplace often results in longer working hours and more demanding working environment.

Private and public sectors may work together to promote shared interests. Private companies tend to leverage state resources and assets, while financing, owning, operating and developing public services and facilities. For example, a private firm may pay a state a fee to operate a freeway for a particular time period in exchange for revenues from tolls.

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