Private sector or public sector

There are many differences between the private sector and the public sector.  Here are three of them.  The private sector can:

1. Pick and choose its customers
2. Manage risk through price
3. Fail

The public sector cannot.

The private sector can choose which markets it wishes to serve and can develop niche products and services to suit those ends: clothes for youths; food for the discerning; cars for the yummy-mummy and gadgets for the geeks.  The public sector provides services if you are alive, or even dead, based upon eligibility which is often stipulated by law. 

The private sector can manage its risk by altering prices.  The higher the likely risk then the higher will be the prices.  If demand is high and supply is low then prices can be raised to throttle back demand and to make hay while the sun is shining.  If demand drops or supply increases then the reverse can be the case.  If I don’t like you, if I think it might be hard or I think you can afford it then the price can go up.  The public sector is limited by the prices that it can charge.  Most service are paid for through taxation, either general or council tax but for the majority of services there is no direct charge for its provision and so the public sector does not have this option.

The biggest difference though is that the private sector has the option to fail, either intentionally or not.  If a product or service is no longer required then the private sector can stop providing it.  If the business runs out of cash it can go bankrupt or be sold to another company which may or may not wish to continue to provide the same products or services.  If the owner retires then they can simply shut up shop and stop doing what they do.  The public sector cannot stop doing those things that it is required to do by statute.

This blog is not having a go at either the private or public sector.  Both have a lot to learn from each other and both have a place in a modern economy but they are different in some significant ways.  This should be noted and understood.  That’s all I am saying.