What is the Role of the Private Sector?

The private sector comprises industry and commerce that is controlled by private citizens as opposed to the state. The role of the private sector may be minor or expansive, depending on the overall social philosophy of government in a region. In general, the role of the private sector is to engage in trade and industry that results in private profit and increases economic activity.

The role of the private sector depends on the role of the public sector. Since even liberal governments tend to retain the power to regulate and set standards for commerce, the legal limitations of the public sector will to some extent control the amount of growth in the private sector. China, for instance, is a country that features a high level of government control across all industries, making the private sector a significantly smaller portion of the economy. In the United States, however, most people are employed by the private sector, due to built-in restrictions that prohibit the government from impeding too heavily on private industry.

In a system where trade is tightly controlled by the public sector, the role of the private sector may be only to fill in gaps where the government does not or cannot meet demands. This may be legal, in which case it is usually done with the permission of the government, or may be illegal, such as through black market trading. By contrast, in a free market economy, the private sector acts and reacts according to market shifts; if demand suddenly shoots up for feather beds, private sector companies can start up or shift operations to meet this demand with little interference from the state. Some experts suggest that the role or duty of the private sector is to meet the needs of the public not managed by the state.

Even in a relatively free market economy, the role of the private sector is at least partially accountable to the requirements of the public sector. Though anyone can start a florist shop in a free market, the government may require regulatory measures such as licensing, payment of income taxes, and some quality assurance protocols in order for the florist to operate legally. In general, free market economies do not embrace a completely laissez-faire, or “hands off,” approach to the role of the private sector, but may try to create the fewest regulations possible to ensure consumer protection while not inhibiting trade.

In addition to the macrocosmic world of supply and demand and large-scale trade, the role of the private sector also encompasses privately-owned assets on a much smaller scale. Households and personal finances are typically concerns of the private sector. Individual or household private enterprise is sometimes referred to as the personal private sector, while private businesses are usually considered part of the corporate private sector.