What Is the Private Sector? Definition and Business Examples

What Is the Private Sector?

The private sector is the part of the economy run by individuals and companies for profit and is not state-controlled. Therefore, it encompasses all for-profit businesses not owned or operated by the government. Government-run companies and corporations are part of what is known as the public sector, while charities and other nonprofit organizations are part of the voluntary sector.

Understanding the Private Sector

The private sector is the segment of a national economy that is owned, controlled, and managed by private individuals or enterprises. The private sector has a goal of making money and employs more workers than the public sector.

A private sector organization is created by forming a new enterprise or privatizing a public sector organization. A large private sector corporation may be privately or publicly traded. Businesses in the private sector drive down prices for goods and services while competing for consumers’ money; in theory, customers do not want to pay more for something when they can buy the same item elsewhere at a lower cost.

In most free economies, the private sector makes up a big portion of the economy, as opposed to nations that have more state control over their economies, which have a larger public sector. For example, the United States has a strong private sector because it has a free economy, while China, where the state controls many of its corporations, has a larger public sector.

Types of Private Sector Businesses 

The private sector is a very diverse sector and makes up a big part of many economies. It is based on many different individuals, partnerships, and groups. The entities that form the private sector include:

• Sole proprietorships
• Partnerships
• Small and mid-sized businesses
• Large corporations and multinationals
• Professional and trade associations
• Trade unions

Even though the private sector is not directly controlled by any government entity, the government does legally regulate it. Any business or corporate entity must operate under the laws of the country it is based in. 

Private vs. Public Sector

The private sector employs workers through individual business owners, corporations, or other non-government agencies. Jobs include those in manufacturing, financial services, professions, hospitality, or other non-government positions. Workers are paid with part of the company’s profits.

Private sector workers tend to have more pay increases, more career choices, greater opportunities for promotions, less job security, and less comprehensive benefit plans than public sector workers. Working in a more competitive marketplace often means longer hours in a more demanding environment than working for the government.

The public sector employs workers through the federal, state, or local government. Typical civil service jobs are in healthcare, teaching, emergency services, armed forces, and various regulatory and administrative agencies.

Workers are paid through a portion of the government’s tax dollars. Public sector workers tend to have more comprehensive benefit plans and more job security than private sector workers; once a probationary period concludes, many government positions become permanent appointments.

Moving among public sector positions while retaining the same benefits, holiday entitlements, and sick pay is relatively easy while receiving pay increases and promotions is difficult. Working with a public agency provides a more stable work environment free of market pressures, unlike working in the private sector.

The Bureau of Labor Statistics tracks and reports both private and public employment in the United States.

Private and Public Sector Partnerships

The private and public sectors sometimes work together while promoting common interests. Private sector businesses leverage governmental assets and resources while developing, financing, owning, and operating public facilities or services. For example, a private company might pay a state a one-time fee to operate a specific length of freeway for a set time in exchange for revenue from tolls.

The Bottom Line

The private sector is the part of the economy not run by the government. It comprises the businesses and enterprises that are controlled by private individuals and groups for the purpose of making a profit.

Companies and organizations run by the state are considered to be the public sector. In free-market, capitalist-based societies, the private sector tends to make up a considerably larger portion of the economy than the public sector.