Classification Using the Public & Private Sector (Cambridge (CIE) O Level Business Studies)

Differences between the Public and Private Sector

Public and Private Sector Firms

• Public sector firms are owned and controlled by the Government

• Private sector firms are owned and controlled by other firms and private individuals (entrepreneurs and shareholders)

• Privatisation occurs when government-owned firms are sold to the private sector

• Many government owned firms have been partially privatised

  • The government retains a share in them so they can influence decision-making and receive a share of the profits

  • E.g. Singapore Airlines shares are 55% government owned and 45% privately owned 

The Characteristics of Public and Private Sector Firms

Reasons Why Public Firms Exist

• Public firms are government-owned

  • They are often referred to as state-owned enterprises (SOEs) or government corporations

  • Public firms exist to

    • Ensure public service provision of goods and services that are not profitable enough to be provided in the private sector

    • Protect strategic industries and national security, such as energy production or water supply

    • Create jobs

    • Encourage economic growth

Public service provision

• Government-owned firms are often established to provide essential public services such as transportation, healthcare, education, and utilities

• They ensure that critical services are accessible to the public, and their operations may prioritise social welfare over profit maximisation

Strategic industries and national security

• Governments may own firms operating in strategic industries, such as defence, energy, telecommunications, and natural resources

• This ownership allows the government to exert control over sectors vital to national security, economic stability, and long-term development

Employment and economic development

• Government-owned firms can play a role in promoting employment and economic development

• By investing in and owning enterprises, governments can stimulate economic activity, create jobs, and support industries that contribute to the overall growth and stability of the economy