Advantages of the Public Sector and Private Sector

In this essay I am going to explore the advantages and disadvantages of the public sector, define what merit and public goods are and explain how the government combines the advantages of the public sector and private sector in the provision of public goods and merit goods. The public sector is any organisation that is run by the government or funded by the tax payer’s money, for example state schools and the NHS. One of the key advantages for working for the public sector is the pensions are 14% higher than the private sector. Job security is another element which is a big advantage for the public sector the reason why is because it is more stable and also has the government backing. The public sector plans for the long term to benefit future generations. One of the key advantages for the public sector is it provides public goods.

Public goods is a product that one individual can consume without reducing its availability to another individual and from no-one is excluded for example public parks, national defence, basic television and also street lighting. Public goods are ‘compulsory’ things that the government thinks are essential to the country, even if you don’t want to have basic television you will still get it. Public goods apply to the whole country from the richest man in the world to the poorest man in the world everyone has the right to public goods. The government also subsides merit goods. Merit goods is a good that has been deemed socially desirable by politicians. Examples of merit goods are schools, libraries and health care. The reason why the government provides merit goods is because if it was left to the private market these goods may be under consumed for example if the private sector was in charge of all the schools in the country people wouldn’t be able to afford it so that is where the public sector intervenes.

The public sector also has disadvantages, one of their main disadvantages is it is classified to be slow and inefficient. Let’s take health care for example, the public sector has a waiting list for you to be seen by a doctor where as in the private market you pay and you get seen as soon as possible. Bureaucratic is a big disadvantage in the public sector it is when the most important decisions are taken by state officials rather than elected representatives it does have positives however it in basic terms sticks to rules and is one of the reasons why public spending is very big. A negivite for the public sector which I have briefly touched upon is there is no incentive to keep costs down in 2013 the public sector spent 675.1 billion pounds. I have explained the advantages and disadvantages on the public sector now I’m going to explore the advantages and disadvantges of the private sector. The private sector is an organisation owned and controlled by private individuals examples of private sector companies are Virgin, Brisitsh Airways and Telecom. The private sector goal is to make profits.

In this instance ‘successes and ‘failure’ are defined very basic. Success = profits whereas failure = bankruptcy. The private sector tends to be fast and efficient and innovative due to its constant striving to make a profit – private firms have to compete with others in the same business, and those that are slow and out of touch will lose money. The private market main aim is to maximise profits this good because it causes a highly competive market which cause more money to be injected in. Another advantage is its efficiency. Efficiency is reducing the amount of wasted inputs. The private sector has been known to be more efficient than the private sector because as I stated before in the public sector disadvantages the public sector has no incentive to keep costs down. The disadvantages of private sector is it is only for those who can afford to pay for example to pay for a private education Eton school is a ‘private’ school and is funded by the parents usually whereas a ‘state’ school is funded by the government.

The private sector cannot pay for public goods or merit goods this is because this can lead to the free rider problem. The free rider defition is individuals who do not pay for the goods and service them consume, and as the private sector is all about profit this would not work because people wouldn’t be able to be for school or health. Another disadvantage about the private sector is it cannot control producer power firms in dominant market positions do not have to price take they can price make or become involved, through collusion, in price fixing for example in 1990 the lease arrangement between pub and breweries meant that the 6 largest compines owned 75% of the pub outlets and these was deemed to be unfair. Another disadvantage of using the private sector is it can’t achieve an equitable distrubion of income.

Public goods and Merit goods are provided by the government due to market failure. The national defence is a fantastic example if it was set up by the private sector and you had companies knocking on your door asking for 10 pounds for the national defence they would be people who would refuse to pay or could not afford to pay and this leads to the free rider problem. Market failure is a situation in which the free forces of supply and demand lead to either an under or over allocation of resources to a specific economic activity. Economists believe there are 6 main reason why market failure is caused, they are: Time –lag causing it harder to fine tune an economy for example it takes around 2 years for a house to go from nothing to liveable as a result price instability within property and associated markets are quite common.

Unequal distribution of income left to its own devices the free market model will do nothing for those who cannot pay. Producer power as I stated before there is no stopping the big companies. Asymmetric information is the use of resources that generate the highest possible value of output as determined in the market by consumers. Externalities is benefits or costs that are experienced by parties other than the immediate seller and buyer in transaction. Finally the last cause of market failure is the free rider problem where individuals who do not pay for the goods and service and use them. To prevent market failure occurring the government intervenes.