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Public and private sectors

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  • Units 1-2: Microeconomics/
  • Unit 1: Introduction to economics/
  • Economic systems/
  • Public and private sectors

Introduction

This lesson focuses on the differences between the public and private sectors.  It is important that students, by the end of the lesson, recognise the differences between the two sectors but also that:

Public and private sectors are two components of mixed economies only.  The private sector is not part of a command or planned economy while a free market economy has no place for a public sector. 

That the public sector is not owned by the government.  Instead it is owned by the public, including everyone currently sitting in your classroom right now.  But is normally controlled by the government though many governments wil set up teams of specialists to run public corporations on their behalf.

That public services are not free goods.  They maybe free to the consumer at the point of purchase but are instead paid by the tax payer.  Any increase in spending on public services must be paid for out of taxation.

Enquiry questions

To what extent should governments intervene in the allocation of resources. 

To what extent do the public and private sector support each other.  Is it difficult for one to exist without the other?

Teacher notes

Lesson time: 1 hour

Lesson objectives:

To recognise that when the government provides public services, free at the point of delivery, this does not make those services free goods.  In common with other economic goods there is an opportunity cost to be paid in the provision of those services - an increase in tax collected.

Teaching notes:

1. Opening question - which of the following services does your government provide free of charge to the consumer - health care, education, roads, unemployment benefit?  Do your classes agree with the level of current government spending or not?  This discussion should take around 10 minutes.

2. Processes - vocabulary - can be learnt via the class notes, which you can print off and submit to your classes.  This exercise should last around 10 minutes and your classes should be encouraged to underline or highlight the key points.

3. Processes - activity 2, considers two opposing views of the public and private sector - the first supportive of the private sector and the second video more critical of the private sector provision of public services.  This leads to the opening enquiry question, to what extent should governments intervene in the allocation of resources.  Allow 20 minutes for this activity.

4. Activity 3 - PPP (Public Private Partnerships) do they offer the best of both worlds and can the public and private sectors work together?  This focuses on the second enquiry question to what extent do the public and private sector support each other.  It is difficult for one to exist without the other?

6. Final reflection - again focuses on the first enquiry question, focusing on the impact of private sector funding on different stakeholders.

1. Beginning activity

Which of the following services does your government provide free of charge to the consumer - health care, education, roads, unemployment benefit?  Are there public services that you believe should be provided by the Federal government but do not?  Are there examples of public services that your Federal government currently provides but you would rather that they didn't?

Key terms:

Mixed economies – an economic system that combines aspects of both the free market system as well as planned economic systems.  It contains two distinct sectors, the public sector and the private sector.

Public sector - the sector of the economy which is controlled by the government but owned by the public. It includes various government services such as the armed forces, the police force, water, public transport, telecommunications, schools and hospitals.

Private sector - the part of the society that is owned and controlled by private individuals.

 Activities

1. How are goods and services in the public sector paid for?

Some services are funded directly from taxation, while others are paid by the consumer at the point of sale.  Some services are funded by a combination of both e.g. a government subsidised public transport system.

b. What is the primary aim of business in the private sector?

Unlike the public sector, which focuses on providing a service, the primary aim of a private sector business should be to earn a profit for the owners of the enterprise. Some private sector organisations however are operated by the voluntary sector, including charitable organisations which operate to promote a cause.  Examples include WWF, Greenpeace and Amnesty International.

Class notes available at:  Public and private sectors

Activity 2: Class exercise

Watch the following short videos and then answer the questions that follow:

First the argument that the private sector is best

Now for the alternative opinion:

  1. Summarise the weaknesses and strengths of a large public sector providing public services.

Hint:

Both videos make compelling arguments and both can point to empirical evidence to support their claims.  There are countless examples of when the public sector has involved itself in the provision of public services and manifestly failed, with the bill ultimately paid for by the tax payer.  At the same time the public sector has a very good record in providing public services such as health, as the video articulates and education, where again the USA's private model is expensive by international standards.

  1. The income tax rate in Hong Kong is amongst the world’s lowest at 15%. By contrast the income tax rate on the highest earners in Finland is a comparatively large 57%. Outline the advantages for the citizens of both countries of the respective tax policies of Finland and Hong Kong?

Hint:

The answer comes down to personal preference.  In Finald, as with many European countries, individuals pay high taxes which reduces their disposable income level.  But in those nations public services including health care, education e.t.c are then provided free of charge.  In Hong Kong disposable incomes are high with low rates of taxation BUT you need to provide for your own families well being.  Public services such as health and education can be expensive for a family.  Also families in Hong Kong would need to save for their own retirement as well as put money aside in case one member of the family loses their job.  

Healthy, high earning families with few or no children would probably be better off in Hong Kong - especially if they have a job which is very secure?  Larger families might prefer Hong Kong, as might the elderly, unskilled and certainly the unemployed

  1. It is election time in your country and you are asked to vote for one of three political parties.  The first plans to raise taxes substantially and use this money to improve public services.  If the government adopts this policy then disposable incomes will fall but high quality roads, education and health will be available to the citizens.  The second party wishes to reduce taxes significantly and instead make cuts to public services.  Finally you could of course vote for the incumbent administration and maintain the current level of taxation and government spending.

Hint:

Such a decision is likely to be determined by the following factors:

  • the students political persuasion.
  • the current level of tax / public services currently available in the country.
  • whether the students are from families with above average wealth (and therefore likely to pay substantially more tax) or from low income families who are likely to benefit more from improved public service provision.

Activity 3: What happens when the public and private sector work together?

Sometimes called a PPP (Public, Private, Partnership) are sometimes seen as offering the best of both worlds - the expertise of the private sector but still an element of control is retained by the government, who can then use this to protect the public interest.  It can also be an effective method for financing projects in cases where the national government has insufficient funds to do so. 

The following video provides an example of a PPP.  After watching the video outline whether you agree with the private sector funding public services or not?

1. Consider the following stakeholders in your response:

  • tax payers who do not drive
  • haulage and delivery services that rely on access to the freeways
  • low income car owners already struggling with spiralling fuel and other living costs.

2. Are there other examples of where businesses in the public and private sector work together? 

An example might include your school which relies on a combination of state funding or private funds.  The money for the school fees also comes from a range of different businesses - some private and some public.

4. Final reflection - Who is better at creating jobs: Government or private sector?

Points to consider:

  • the difficulty of quantifying the number of jobs created by each sector
  • the provision of scarcely used public services.  For example while private sector delivery firms like DHL provide delivery services in high volume areas, presumably no private sector business would volunteer to offer a delivery service to a remote area - surely only the public sector could provide such a scarcely (but essential for those communities) used service.

The activities on this page link to the following textbook page: Unit 1.1 Introduction to Economcs