The private sector is controlled by private citizens and its role can vary depending on government regulations. In a free market economy, the private sector reacts to market changes, while in a tightly controlled economy, it may fill gaps where the government cannot meet demands. The private sector is also responsible for meeting public sector requirements and includes privately owned assets.
The private sector comprises industry and commerce that are controlled by private citizens as opposed to the state. The role of the private sector can be minor or expansive, depending on the general social philosophy of government in a region. In general, the role of the private sector is commerce and industry that result in private profit and increase 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 trade, legal constraints on the public sector will, to some extent, control the amount of growth in the private sector. China, for example, is a country that has a high level of government control in all sectors, making the private sector a significantly smaller part 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 the private sector too much.
In a system where commerce is tightly controlled by the public sector, the role of the private sector may just be to fill gaps where the government does not or cannot meet the demands. This can be legal, in which case it is usually done with government permission, or it can be illegal, such as through black market trading. On the other hand, in a free market economy, the private sector acts and reacts according to market changes; if demand suddenly increases for mattresses, private sector companies can start or change 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 serve the needs of the non-state-managed public.
Even in a relatively free market economy, the role of the private sector is at least partially responsible for public sector requirements. While anyone can start a florist shop in a free market, the government may require regulatory measures such as licensing, payment of income tax and certain quality assurance protocols for the florist to operate legally. In general, free market economies do not take a completely laissez-faire, or “hands-free” approach to the role of the private sector, but may try to create as few regulations as possible to ensure consumer protection without inhibiting the business.
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. Families and personal finances are typically private sector concerns. Private companies, individual or domestic, are sometimes referred to as the private sector, while private companies are generally considered part of the corporate private sector.
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