Classification Using the Public & Private Sector (Cambridge International IGCSE Business)
Exam board Cambridge International · IGCSEUpdated 2025-05-29
Differences between the Public and Private Sector
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Public sector firms are owned and controlled by the Government
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Private sector firms are owned and controlled by other firms and private individuals (entrepreneurs and shareholders)
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Privatisation occurs when government-owned firms are sold to the private sector
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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
| Public sector firms | Private sector firms |
|---|---|
| - Their main goal is usually to provide a service - Public sector firms can operate on a local, regional or national government level - E.g. Transport for London (local); Agricultural State Service in India (regional); Caribbean Airlines (national) | - The objective of most private sector organisations is profit maximisation - This often causes the private sector to be more efficient than the public sector with higher levels of productivity - Types of business ownership vary from sole trader to partnerships to company shareholders |
Reasons Why Public Firms Exist
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Public firms are government-owned
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They are often referred to as state-owned enterprises (SOEs) or government corporations
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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
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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
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