Private Sector vs. Public Sector – What’s the Difference?
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The public sector is part of the economy that is controlled by the state. It consists of public enterprises as well as public services like schools, and hospitals. The private sector is not under the control of the state. It is largely made up of individuals and companies that mostly focus on generating profit.
One of the biggest differences between the private and public sector is the freedom to conduct their activities as they please. Entities in the private sector have more freedom in formulating their own policies and the way they do business. Public enterprises, on the other hand, are bound by regulations, policies, and laws. Decision making is mostly left to top-level management, and only when truly necessary.
Organizations within the public sector are geared towards serving the public. Although they are under pressure to make sure that their activities are carried out in a financially efficient way, their primary goal is not to generate profit. A state department can lack financial efficiency for long periods of time without running the risk of being closed down.
Generating profit is the sole purpose of private entities. Businesses in the private sectors have to deliver goods or services to their customers while making sure that the interests of their stakeholders are protected. When they fail to generate profits, they can go broke and may end up closing their doors.
Both the public and private sectors need the combined, daily efforts of individuals to be successful and efficient. There is, however, a big difference in the way these people are hired. In the private sector, a business can pretty much hire whoever they want. Larger companies with different levels of management may dictate how the hiring process should work as well as the minimum requirements employees should meet, but that is for the company to decide. Firing an employee should be done in accordance with labor laws but can also be done at any time.
In the public sector, hiring and layoffs are governed by strict and complex rules. Employees in public offices enjoy more protection and benefits in the long run. Creating a new position and hiring employees is a long process. There are however public positions that have been established for years and that people can specialize in. For example, if you want to be a librarian and are getting your librarian degree, you are getting a specific set of skills and education so that you can be hired for that position.
Transparency and accountability
Public offices depend on tax revenue for their income. Funding for procurement should be approved by officials and only when certain conditions are met. The procurement process in the public sector can be long and characterized by certain administrative processes. In the private sector, however, procurement is a quick process. Private companies may lose business if their procurement processes are drawn out. The only things that dictate supplier relationships are contract and trade laws and if a business has funds available, procurement consists of mere routine.
Because public enterprises are funded by the taxpayer, they can be held accountable by the general public. Their activities and finances are almost completely transparent and the decisions they make can be subject to criticism.
Private companies are accountable to their stakeholders. This can include the public on social responsibility issues like pollution, but as a rule, a board of directors doesn’t have to face the same level of scrutiny that public offices have to.
Compared to private entities, the public sector has a lot more bureaucracy and red tape to deal with. Private companies cannot, however, operate in isolation from society, and should always ensure that their business activities are carried out in an ethical and responsible way.
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