The sectors of a mixed economy
Yvonne Harvey, Contributor

Students from various schools join in a peace song at a peace meeting at Mandela Park, Half-Way Tree. -Junior Dowie/Staff Photographer

Hello everyone. I hope you all did your homework, which was to list the advantages and disadvantages of the three major economic systems that were discussed last week. You should have realised that many of the features or characteristics that we discussed are either positive (advantages) or negative (disadvantages). In addition, you should have done additional reading to gain other points.

Our task today is to look at the final topic in Unit One. In last week's lesson, I mentioned that the dominant feature of a mixed economic system is the existence of two definite sectors - the private sector and the public sector. This lesson will outline the characteristics of the private and public sectors. It will also highlight the differences in motivation and orientation of the two sectors. We will begin by considering the term, 'sector of an economy'.

The sector of an economy refers to a section, division or part of an economy. In the mixed economy, the private sector involves areas of economic activity in which economic decisions are made primarily by individual households and businesses and the public sector is where areas of economic decisions are made primarily by the Government.

Now, let us move on to the comparison of the two sectors.

The private sector versus the public sector:

• The private sector consists of private individuals, private businesses and the marketplace. The public sector, on the other hand, consists of state or government-owned enterprises.
  
  
• The private raises its funds through personal and family savings or inheritances, borrowing from banks and other financial institutions, selling shares and through private loans. On the other hand, the public sector raises its funds by selling government bonds and treasury bills, revenue collected from taxes, grants from overseas and loans from home and abroad.
  
  
• In allocating or distributing the scarce resources that it owns, the private sector is motivated by the opportunity to maximise profits. The public sector, though, allocates the scarce resources it owns and seeks to maximise social welfare.
  
  
• The private sector allocates resources to the production of luxury-type goods and services, for example, furniture and cars. The public sector, however, allocates resources to the production of goods and services that are considered to be necessary to the general well-being of society, for example, utilities such as water.
  
  
• The prices of public sector goods and services tend to be lower and, therefore, more affordable than private sector goods and services.
  
  
• Business operations of the private sector rarely operates at a loss. Public sector businesses tend to operate at a loss for prolonged periods of time.
  
  
• In terms of employment, they both employ a significant number of persons. However, as the public sector privatises more businesses and a greater number of individuals become self-employed, we can conclude that the private sector is a larger employer of labour than the public sector.
  
  
• The private sector functions with little or no government intervention, while the public sector intervenes in the private sector to regulate it when necessary.
  
  
• The types of businesses that fall under each sector also differ:

  Private sector business
  Public sector business
  The sole trader
  Local authorities
  Partnerships
  State corporations
  Companies
  Private and public limited companies
  Nationalised industries
  Co-operatives

Please bear in mind, that although there are major differences between the two sectors, they do not conflict nor compete with each other. Rather, they complement each other and purchase goods and services from each other in order to operate efficiently. In addition, the two sectors often give advice to each other in order to carry out their interests.

Now it's question time. Prepare an outline to the following question.

(a) Explain the term, 'sector of an economy'. (2 marks)

(b) Discuss THREE differences between the private sector and the public sector. (6 marks)

(c) Outline ONE way in which the TWO sectors complement each other. (2 marks)

Total marks:10

This concludes Unit One of the POB syllabus. Before we move on to Unit Two, I will give you a test on Unit One. That will be next week, so study hard. You may use the test results to evaluate your performance in the subject so far. So long, until next week.

Yvonne Hardy teaches at Glenmuir High School.