Chapter 3

Private Sector Economy

 Private Sector Economy
 The private sector is the part of
the economy, sometimes referred
to as the citizen sector, which is
run by private individuals or
groups, usually as a means of
enterprise for profit, and is not
controlled by the State.
 Private Sector Economy
 The private sector is the part of a
country's economic system that is run by
individuals and companies, rather than
the government.

 Most private sector organizations are

run with the intention of making profit. 
 Private Sector Economy
 Privatesector economy is the part of
economy that is owned by individuals
and operated for their personal benefit.

 Charitiesand other non-profit
organizations are part of the
voluntary sector.
 Private Sector and Development
 The private sector is indeed a major actor for
creating economic opportunities for people living
in poverty, through investment, generating
employment, creating innovation and generating
revenue for social sectors.

 But not all such investment has an impact on

poverty and growing socio-economic inequalities
in many countries.
 The Goal of Private Sector Economy

 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.
 Employment
 The private sector employs most of the
workforce in some countries. In private
sector, activities are guided by the motive to
earn money.

 The private sector employs workers through

individual business owners, corporations or
other nongovernment agencies.
 Employment
 A 2013 study by the International Finance
Corporation (part of the World Bank Group)
identified that 90 percent of jobs in
developing countries are in the private sector.

 The private sector provides around 90% of

employment in the developing world
(including formal and informal jobs)
 Diversification
 In free enterprise countries, such as the United
States of America, the private sector is wider
and makes up most of he economy. The
private sector is strong because it has a free
economy

 In countries with more government authority,

command system countries such as China, the
public sector makes up most of the economy.
 Regulation
 States legally regulate the private sector. Businesses
operating within a country must comply with the laws in
that country.
 The government imposes few restrictions on
businesses and their rules these include:
 Price regulations
 Production laws
 Licensing and permits
 Labor laws
 Industry conditions
 Private Goods
 Goods that are privately owned and
used to benefit only their owners.

Private Exchange
 Economic activity that involves
exchange.
 Giving one thing in return for some
other thing.
 Types of Private Sector Economy

 Sole Proprietorship – Individually owned,

easy to set up, profits undivided, quick
decision making / Limited Resources

 General Partnership – Two or more

operate under partner agreement, more
specialized, more resources / Decisions
and profits are both divided
 Types of Private Sector Economy
 Corporations – Legal entity distinct from
the individual owners, Board of Directors
& Shareholders, Usually have access to
greater amounts of capital, limited
liability / Bureaucratic in nature,
Conflicting Interests
 Types of Private Sector Economy
 Small and mid-sized Businesses:
are businesses whose personnel
numbers fall below certain limits,
A business with 100 or fewer employees
is generally considered small, while one
with 100-999 employees is considered to
be medium-sized.
 Types of Private Sector Economy

 Large Multinational Corporations

 Hewlett-Packard (HP).

 International Business Machine (IBM)

 Benson & Hedges

 Procter and Gamble (P&G)

 Google

 Facebook

 Apple
 Developed Countries and Private Sector
A survey made by 2004
 United States 89.46%

 Canada 87.72%

 Australia 85.85%

 Japan 84.38%

 United Kingdom 83.65%
 The Role of Private Sector Economy
 Develop and maintain infrastructure
 Promote and expand existing businesses
 Promote human capital development
 Generate employment
 Promote small, micro and medium enterprises
 Provision of goods and services
 Attract investment in the city
 Promote diversification of business
 National Income Distribution
 Wages & Salaries
 Proprietor (Self Employed) Income
 Capitalist Income (Corporations profits +
rent + interest
 Largest component of capitalist income is
the profits of corporations
 The sum total of all these is defined as
“National Income.
 Personal Income

 Three different categories

 Salary
 Savings

 Spending (Consumption)
 Consumer Spending
 Divided into three categories

 Durable goods – More than 5 years

 Non-durable goods – Less than 2 years

 Services
 The Business Population
 Plant – Physical establishment where
production or distribution takes place
 Firm – Business organization that owns the
plants
 Industry – Group of related firms
 Multi-plant Firms – Includes those firms
that have been integrated both horizontally
& vertically
 Government & Competition
 Competition forces producers to respect
consumer sovereignty
 Monopoly power allows for producers to
supplant the consumer and impose its own
power
 Natural monopolies occur when technological or
economic realities make a monopoly more
efficient
 Government will then regulate price & service
 Promoting Economic Stability

 Responsibility of the Federal Reserve

 Policy is to tax and save if inflation

threatens, lower taxes and spend when
economy is struggling
 Others Sources of National Revenue
 Personal Income Tax (payroll tax).
 Corporate Tax (tax on corporations)
 Excise Tax (tax levied on production for sale)
 Duties: (taxes on importation)
 Road tax: (vehicle excise duty)
 Value added tax: (VAT) is a type of sales tax)
 State & Local Governments obtain revenue through sales
tax & property tax
 Money is used for education and public welfare