One main difference between public sector and private sector entities is that their objectives are different. The objective of public sector entity is to deliver public goods and services to all citizens in order to maximize their welfare. However, the principal objective of the private sector entity is to make profit on the goods and services they produce and sell in the market.
Required:
Explain FOUR (4) reasons why these differences are important. (6 marks)
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- Means of funding is different. Public sector entities are financed largely from the public resources resulting from taxes, levies and other public moneys whereas private sector is financed through capital contribution of owners such as shares. Therefore, public entities are collectively owned by the citizens without equity interest but equity interest is the basis of private ownership.
- Accountability structures are different. Public sector entities are accountable to citizens through parliament but private entities are accountable to the shareholders through the board of directors.
- The nature of goods and services they offer is different. Public sector is engaged in the provision of public goods and services which are non-excludable and non-divisible. Private sector is involved in the provision of private goods that are rivalry, divisible and discriminatory. Thus, public sector operates in a monopolistic market where private sector operates in a competitive market.
- The regulatory environment is different. Public sector entities are established by a specific enactment of Parliament where as private sector entities are governed by general commercial enactments and other industry specific enactments.