Private Sector, Public Sector

Post Reply New Topic

Much of the hardest ideological debate over economic policy involves different conceptions about the relative roles of the public and private sectors in a nation's economy. On the Right (Tea Party, libertarians, free-market conservatives), partisans advocate a near abolition of the public sector. In contrast, there is no position in U.S. politics except at the very farthest left fringe that advocates for an abolition of private capital (this includes many communists, who may advocate a "social market").

Tacit in many arguments is that supporting one means denying the other any role—that the economy is an ideological zero-sum game. Conservatives will often perceive progressives who advocate for a government role in health care, for example, to be a step towards outright socialism and that liberals want to annihilate all private property and even basic personal freedoms. Likewise, many liberals conclude conservatives must be heartless because they are unwilling to let the government play much of a role in social welfare. In reality, in almost every country in the world, the public and private sectors both exist, dominating the economy in varying proportions. Between the two extremes, a more rational synthesis exists.

Moreover, in many ways, the public and private sectors are not so different:

• Both have expenses and collect revenue.
• Both offer employment.
• Both can outsource work to a third party.
• Both can own property.

The major differences then are:

• The public sector accrues revenue through taxes, fees, fines, bonds, and forfeiture whereas the private sector generates revenue through sales (although technically a government agency could sell off old computers, for example), rents and loans, gifts (although grants and donations can be made to the government—e.g., land donated/leased for parks), trades, and investments (stocks and bonds). Perhaps the greatest difference, though, are taxes, which the government has the authority to make compulsory. Theoretically no one is obligated to pay a private entity unless some contract stipulating such terms has been agreed to (although one may feel services like electricity, telephone, transport, education, and health care are quite important—very nearly obligatory costs).
• The private sector can make profit to reinvest in the business or pay out as dividends to shareholders (although charities and religious organizations are typically restricted from taking a profit).
• Quite often, a service provided by the public sector is expected to "lose" money as a matter of course (e.g., users of parks do not directly pay every time they visit the park, but they may pay indirectly through taxes). Instead, most of their budget is allocated through funds mostly from taxes, and the agency's or department's budget may be set by a governor, commissioner, or through a legislated budget. This is somewhat like how funds are allocated to various divisions and departments within a for-profit corporation although there the metric for funding may be profitability (or whoever's directory can play the influence game best). Instead, government services can be seen as a sort of national (or statewide) insurance coverage or homeowners' association. This all means the public sector can provide things that the private sector may find unprofitable but the public may find necessary (e.g., handling the tragedy of the commons and other externalities).
• The public sector is accountable to the people through elected officials. The private sector responds to demand in the market (thus the rich have greater influence).

One more pertinent point...

The Private Sector can rely on the Public Sector to socialize risky R&D. Years later, the fruits of such R&D shall be privatized.

The Private Sector can ask the Public Sector to bail it out through extensive corporate welfare whenever they make bad choices.

In the market place, consumers vote every hour of every day and currency is their ballot.

ruveyn

True enough, and look at the mountains of crap they buy.

The issue here is also that taxes specifically pay a certain group of entities, while buying the services mentioned allows one to pick what organization to pay.

This ability to pick what organization one wants to pay is a major factor. You only purchase the car, the telephone service, the electricity, the education and so on, that you think is the best deal and let the providers compete for what constitutes that. This means that the private sector is going to be more oriented towards competition.


The rich have great influence in the public process. It takes money to support the actions of a political party. Not only that, but frankly, the market doesn't really function similarly to a government.

Not only that, but really do you somehow think that the rich buy so much more food, so many more cars, and so on that the industry really just cares only for their purchasing decisions? No, that's silly. Industries usually cater to the purchasers of products, regardless of wealth, unless a person is going to eat at McDonalds 20 more times a day after winning the lotto, McDonalds is going to try to serve their customers.

Now, I suppose you might just be talking about quality, but the issue there is that all societies are going to respond to wealth. If they didn't, then wealth wouldn't mean anything. It would no longer provide incentive, and that would have it's own problems in all likelihood.


In any case, I don't think that your analysis really gets the major difference. The biggest difference is that the private sector is private and that the public sector is public. The private sector exists out of the choices of private individuals, and thus is only accountable to their choices, while the public sector is controlled by the democratic process. You touch on this with points 1 and 4, but I don't think you are really appreciating the real difference. Under your own analysis, the only real difference is just how they collect funds and that public management is in your perspective more accountable to the poor.


I also think that Master_Pedant's points are also relevant, and hit on some issues that you really don't explore as well as you could. The income of the public sector has less variation and thus can be used to stabilize society and pool risk better than the private arguably could.


I recognize that you likely are trying to make the private and public sectors less alien to each other, but they really do have real differences that should never be understated. Now, you could argue against the notion of different essences I suppose, and that may be valid, but regardless of whether the private or public sector have or do not have essences, they do function differently.

In a theoretically perfect free market, a variety of suppliers would be competing to satisfy a demand and differentiating themselves in any number of ways. Often, it seems that collusion as much as competition is the norm; they may not be meeting conspiratorially to fix prices, but the result is nearly the same. Cell-phone service is a perfect example. All carriers add a silly message after the customer's own recorded message before letting the caller record a voicemail; this results in extra airtime to charge for. People can pay 20¢ per text message or buy a plan that includes hundreds of text messages (for the people who would only send a few per month, neither option is very good); they are relying on the typical consumer's ignorance of the technical cost of sending a text message (in comparison to a voice conversation). Then look at how different cell phones and smartphones are tied to different carriers and plans.

Television service is another example: I can either rely on the free over-the-air broadcasts or buy an overpriced cable or satellite package where I'd be paying mostly for channels I'd never watch. Here also, there is a definite natural monopoly. Communities are not going to let every joe who wants to start a cable company run fiber all over the place, and NASA's not going to let joe random launch a satellite into orbit. An alternative model I've read about was that the fiber/copper/whatever would be a public good that any number of private companies could lease out to provide competing television/Internet service. That sounds nice, but it isn't likely in the United States.

Something like health insurance is even more critical because, when the market fails, people die.

Obviously no one's going to buy more McDonald's; the rich will get their food elsewhere because McDonald's is crap. The wealthy are able to set the overall tone of the market.

Ideally, the public sector should be more accountable to the people, including those without much money, but this is an ideal, an ought. Things like unlimited campaign contributions (thank you, Supreme Court) distort the democratic process.

Exactly; this is one of the main areas where the public sector is a necessity in addition to the private sector.

My main point was to show that they're not wholly alien from each other and that a functioning society needs a balance of both.

Umm.... I don't see much hard evidence for collusion here. The text message thing at best looks like a bundling issue.

The cable thing also seems like a bundling issue. Also, you are referring to an oligopoly. Unless you are going to call cable and satellite to be different goods, both parties are in competition. Not only that, but TV is in competition with the internet as a lot of TV programs are now found online, as are things not found on the television.

You're going to have to explain what "overall tone of the market" means. Are you just referring to cultural values? Cultural elitism happens all over the place.

Yeah, but even if campaign contributions were smaller, we'd still have rich politicians and rich people who would vote more often than poorer people.


Ok?


The majority of the populace believes that a balance is necessary, the question is what balance is necessary. Even conservatives push for a military and jails. Unless your point is to attack anarchism, a very unpopular group and a more speculative group(or socialism which is the same), I don't see a reason for saying "needs a balance of both".

If people want crap, there will be others who will manufacture crap and sell it to them.
In the public sector, people are forced to buy crap, forced to give money to buy crap for other people who can't afford crap.

The question is, should we let people buy the crap they want, or form political parties that compete for positions in govt to dictate on how crap should be managed?
Democracy dictates on both instances. What type of democracy is the difference.
One is political democracy. The biggest percentage of people choose politicians, that could have some ideas that individual voters might disagree with, politicians that can make mistakes, flipflop/lie, be bribed or blackmailed. Not every person living within the territory can participate, and the fate of politicians can be affected by other interests, like corporate interests who fund their favorite candidate. It happens on the presidential debates where a McCain would get 18 minutes and a Ron Paul would get 6. Certain politicians get more coverage, others get ridiculed because the MSM is corporate.
The other is the democracy of the market, the one Ruveyn mentioned. This democracy has a higher level of participation and it deals directly with our needs. We ALL participate in the market because of our needs, daily. This has a greater impact than politics and could have an even greater positive impact if people knew about how important and real the democracy of the market is.
It is not insignificant to boycott a corrupt company. This is one of the best examples of people's ignorance of the market. Their selfishness makes them see themselves as alone in this world, like they are the only ones who could ever make an impact on the market and other people are disconnected from this system. They fail to see how the market phenomenon arose and how does it perpetuate(human cooperation, human mutual exchange).

It is frankly amazing to me that you totally accept that the public can be flimflammed by crooked politicians and yet have marvelous judgment unaffected by the business controlled media and advertisements in their purchase of goods produced for all sorts of uses but mainly for the profit of the producer which has no moral limitations and very little neutral government regulation.

The Edsel was "voted" out of existence by the buying public as was Pan Am Airlines. Unfortunately this happens far too seldom.

ruveyn

Whether the Edsel or Pan Am were discarded for real faults or merely counter advertising by other automobile and airline advertising or other factors aside from consumer preference is not something I can determine since many other very worthwhile products and services have disappeared for all sort of reasons and many successful products (like bottled water) seem to be doing quite well.

Mistakes still happen in a free market environment, corruption still happens, why do you keep insinuating that I'm denying this?

My point was that the democracy of the market is far more inclusive and efficient than political democracy.
Everyone has a voice, the felon on parole, the foreigner on a visa or illegally, the minors, everyone who can participate in the market. The vote is direct/constant and diverse. The candidates? Thousands of industries and providers to choose from.

Now, the media reference. Who are these people... Are they subsidized? Are their sponsors subsidized? Are these media outlets nationalistic? (The problem is worse now with government involvement).
Without govt involvement in the market there are no corporate giants. There are no subsidies to specific media outlets, whose owners always happen to be closely related to the establishment.
One of the main excuses of the State to subsidize "journalism" is to ,"to inform the public of what the govt is doing"(with limited details, or course), without this constant bombardment of politics people would worry about their surroundings and not about how much money should be spent to promote the growth of the State.
The mainstream media is a dying industry. Newspapers seems to be its first victim. Cable news will follow soon. Who the hell pays attention to them in full spectrum but older people, political nuts and conspiracy theorists? People are staring to realize that you are more informed through the Internet with alternative sources than through these media giants.


If you keep saying that lack of govt regulation in the market is what causes economic instability then you are showing intellectual dishonesty.
You know very well what causes/creates corporations.
Where will you find the most corruption and scams? In the small companies or in the giant govt subsidized corporations? Who funds political campaigns and donates to lobbies? Small companies or corporations?


And what's the deal with relating profit to something negative?
Profit is the very reason why there is a market for us to cooperate with each other and participate in mutual exchange.
You do not want a job that produces no profits.

Every producer has no moral limitations?
(That is what it sounded like).


I read your posts, I have studied and I understand your side of the story, I once belong to it.
But you fail to see my point. Every response seems to be scare stories and inaccuracies on how the market works.

The current financial disaster in the USA is directly attributable to the loss if the Glass Steagall Act and the resulting free market. The almost total disaster of the US health system is due to the "free market" forces out of the insurance companies and the pharmaceutical corporations. These are not niggling minor events. And they are due to the power of money controlled by big corporations. And if you think the media is not also under their thumb then you are far more unaware that even I suspected.

I think it should be noted that deregulation in the financial sector was very one sided deregulation. The Gramm–Leach–Bliley Act removed regulations permitting reckless actions by banks by didn't remove the corporate safety net.

"Socialized risk, privatized profit"

... or, as Chomsky likes to put it: "Free markets are good for you [working and middle class citizens] but not for me [corporations]."

The question of what balance is necessary is a complete arbitrary issue.
Why should you live up to my values or me live up to yours? (You might want to live in a socialist commonwealth or in free market anarchy, who am I to tell you not? You should be able to secede or move to your community of choice. Today, these communities do not exist because territories are under the jurisdiction of central governments, too much power in a few hands).

Decentralized power allows for diversity of systems. This way they can compete and prove which is the most efficient one. It allows for people to relocate to likeminded communities.
The political class has not allowed this, in fact, they always seek to grow, centralize power, plan the economy and restrict the movement of people(immigration policies).
A gradual shift is possible. Just like we came to believe that bigger government is necessary to solve problems(which has proved incorrect) we can come to realize that smaller(or no) government is necessary.
Statistics show that people who live in freer economies live better. The number of immigrants to these economies is another indicator that economic freedom is what moves people around. You move because you want a higher standard of living. Patriotism and nationalism are only good for politicians to exploit, to herd the masses in a single group.

Itts quite obvious from the latest Supreme court decision on out to a multitude of corruption scandals the so-called "big government" is a front for big business and not a particularly hidden one.