Last updated on May 10, 2022
What is the Private Sector?
The private sector is a part of the economy that is not run by the government. It is usually comprised of organizations run by individuals and groups who seek to generate and return a profit back to its owners. The private sector can be defined as: “an organization with a majority private ownership and engages in profit-seeking activities.”
The private sector plays a vital role in the economy by creating jobs, producing goods and services, and generating tax revenue. The private sector is also responsible for most of the innovation that takes place in an economy.
The private sector has become increasingly important in the economy over time. This is due to globalization, which has led to more competition and privatization. The private sector now plays a vital role in most economies around the world. Globalization has also led to privatization and deregulation, which have further boosted the private sector.
Privatization and Deregulation
Privatization is the process of selling government-owned businesses and industries to private companies. Privatization can lead to more efficient and innovative businesses, but it can also lead to higher prices and reduced access to essential services.
Deregulation is the process of removing government regulations on businesses. Deregulation can lead to more competition and lower prices, but it can also lead to less consumer protection.
Benefits and Drawbacks with the Private Sector?
The private sector is efficient and innovative. It allocates resources in a way that maximizes economic growth. The private sector also provides jobs and generates tax revenue. However, the private sector can be unstable and prone to cycles of boom and bust. It can also be unfair, with some people benefiting more than others. Additionally, the private sector can have negative environmental impacts.
Organizations in the private sector are usually free from government control or ownership but sometimes choose to partner with a government body in a public-private partnership to jointly deliver a service or business venture to a community.
Popular examples of public-private partnerships, or P3s, in different countries include:
- The West Coast Infrastructure Exchange (WCX) in the United States
- Many health and education facilities in the United Kingdom
- Ontario’s Highway 407 in Canada
Examples of the Private Sector
Small, privately owned businesses form the greater part of the private sector. Despite this fact, this sector boasts a rich diversity of individuals, partnerships, and groups — from small mom-and-pop stores to multi-national conglomerates.
Examples of organizations in the private sector include:
- Sole Proprietors: Designers, Developers, Plumbers, Repairmen
- Partnerships: Dentistry, Legal, Accounting, Tax
- Small and Medium-sized Businesses: Retail, Hospitality, Food, Leisure, Legal Services
- Large Multinationals: Apple, Tesla, Disney, Procter & Gamble, PepsiCo
- Professional/Trade Associations: Canadian Institute of Management, American Management Association
- Trade Unions: British Columbia Teachers’ Federation, American Postal Workers Union
Read more: What is the difference between the private and public sectors?
Size of the Private Sector
The Gross Domestic Product (GDP) of a country represents the final value of all goods and services produced in a period of time.
In most developed countries, the private sector contributes a significant percentage towards its total GDP. The data (as of 2004) is as follows:
- 89.46% – United States
- 87.72% – Canada
- 85.85% – Australia
- 84.38% – Japan
- 83.65% – United Kingdom
Top 5 Largest Private Sector Employers
It is hard to find a reliable source of how many but according to research done in 2019 by Statista, the top 5 largest Fortune 500 companies are as follows:
- Walmart (USA) – ca. 2.2 million employees
- Amazon.com (USA) – ca. 798.000 employees
- Hon Hai Precision Industry (Taiwan) – ca. 757.000 employees
- Volkswagen (Germany) – ca. 671.000 employees
- Compass Group (United Kingdom) – ca. 596.000 employees
Trends in the Private Sector
In the United States, researchers Keith Hall and Robert Greene state that since the beginning of the Great Recession, the private sector has been shrinking while the public sector has been growing in most states.
In Canada, the public sector is also ‘crowding out’ private job growth.
In the United Kingdom, the opposite seems to be true: the private sector is growing while the public sector is shrinking.