The part of the national economy that is not under direct government control. 

 The private sector is the part of the economy, sometimes referred to as the citizen sector, which is owned by private groups, usually as a means of establishment for profit or non profit, rather than being owned by the government. 

The private sector employs most of the workforce in some countries. In private sector, activities are guided by the motive to earn money.

A 2013 study by the International Finance Corporation (part of the World Bank Group) identified that 90 percent of jobs in developing countries are in the private sector.[1]

In free enterprise countries, such as the United States, the private sector is wider, and the state places fewer constraints on firms. In countries with more government authority, such as China, the public sector makes up most of the economy.[2]

States legally regulate the private sector. Businesses operating within a country must comply with the laws in that country. In some cases, usually involving multinational corporations that can pick and choose their suppliers and locations based on their perception of the regulatory environment, local state regulations have resulted in uneven practices within one company. For example, workers in one country may benefit from strong labour unions, while workers in another country have very weak laws supporting labour unions, even though they work for the same employer. In some cases, industries and individual businesses choose to self-regulate by applying higher standards for dealing with their workers, customers, or the environment than the minimum that is legally required of them.[3]

There can be negative effects from the private sector. In the early 1980s, the Corrections Corporation of America pioneered the idea of running prisons for a profit. Today, corporate-run prisons hold eight percent of America's inmates. Since it is from the private sector, their main priority is not rehabilitation, but profit. This has resulted in many human rights violations across the United States.[4]

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1. ^ "IFC Jobs Study : Assessing Private Sector Contributions to Job Creation and Poverty Reduction". January 2013.
2. ^ Rouse, Margaret (August 2013). "What is private sector? - Definition from WhatIs.com". Tech Target. Retrieved July 16, 2017.
3. ^ Haufler, Virginia (2013-01-25). A Public Role for the Private Sector: Industry Self-Regulation in a Global Economy. Carnegie Endowment. ISBN 9780870033377.
4. ^ Bauer, Shane. "Private prisons are shrouded in secrecy. I took a job as a guard to get inside-then things got crazy."Mother Jones. N.p., 06 June 2017. Web. 10 June 2017.

 Economic sectorsThree-sector modelPrimary sector (raw materials)
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Quinary sector (human services)TheoristsAGB Fisher · Colin Clark · Jean FourastiéSectors by ownershipBusiness sector · Private sector · Public sector · Voluntary sector 

By THE INVESTOPEDIA TEAM Updated June 19, 2023 Reviewed by THOMAS BROCK Fact checked by MARCUS REEVES

The private sector is the part of the economy that is run by individuals and companies for profit and is not state controlled. Therefore, it encompasses all for-profit businesses that are not owned or operated by the government. Companies and corporations that are government run are part of what is known as the public sector, while charities and other nonprofit organizations are part of the voluntary sector.

• The private sector consists of all privately owner, for-profit businesses in the economy.
• The private sector tends to make up a larger share of the economy in free market, capitalist based societies.
• Private sector businesses can also collaborate with government run agencies in arrangements called public-private partnerships.

Private Sector

The private sector is the segment of a national economy that is owned, controlled, and managed by private individuals or enterprises. The private sector has a goal of making money and employs more workers than the public sector. A private sector organization is created by forming a new enterprise or privatizing a public sector organization. A large private sector corporation may be privately or publicly traded. Businesses in the private sector drive down prices for goods and services while competing for consumers’ money; in theory, customers do not want to pay more for something when they can buy the same item elsewhere at a lower cost.

In most free economies, the private sector makes up a big portion of the economy, as opposed to nations that have more state control over their economies, which have a larger public sector. For example, the United States has a strong private sector because it has a free economy, while China, where the state controls many of its corporations, has a larger public sector.

The private sector is a very diverse sector and makes up a big part of many economies. It is based on many different individuals, partnerships, and groups. The entities that form the private sector include:

• Sole proprietorships
• Partnerships
• Small and mid-sized businesses
• Large corporations and multinationals
• Professional and trade associations
• Trade unions

Even though the state may control the private sector, the government does legally regulate it. Any business or corporate entity operating in that country must operate under the laws. 

The private sector employs workers through individual business owners, corporations or other non-government agencies. Jobs include those in manufacturing, financial services, professions, hospitality, or other non-government positions. Workers are paid with part of the company’s profits. Private sector workers tend to have more pay increases, more career choices, greater opportunities for promotions, less job security, and less comprehensive benefit plans than public sector workers. Working in a more competitive marketplace often means longer hours in a more demanding environment than working for the government.

The public sector employs workers through the federal, state or local government. Typical civil service jobs are in healthcare, teaching, emergency services, armed forces, and various regulatory and administrative agencies. Workers are paid through a portion of the government’s tax dollars. Public sector workers tend to have more comprehensive benefit plans and more job security than private sector workers; once a probationary period concludes, many government positions become permanent appointments. Moving among public sector positions while retaining the same benefits, holiday entitlements, and sick pay is relatively easy while receiving pay increases and promotions is difficult. Working with a public agency provides a more stable work environment free of market pressures, unlike working in the private sector.

The Bureau of Labor Statistics tracks and reports both private and public employment for the United States.

The private and public sectors sometimes work together while promoting common interests. Private sector businesses leverage governmental assets and resources while developing, financing, owning and operating public facilities or services. For example, a private company might pay a state a one-time fee to operate a specific length of freeway for a set time in exchange for revenue from tolls.

In addition to generating profits, the private sector provides employment opportunities, delivers specific goods and services, helps develop industries or technologies, enables the functioning of a diverse group of businesses, and adds to the national income. 

There are a number of types of companies or entities that constitute the private sector. They include sole proprietorships, partnerships, and privately-owned corporations.

The public sector consists of all companies or agencies that are government owned or associated. Examples include federal agencies such as the I.R.S. and the U.S. Department of Labor, state services such as police and fire departments, and a variety of additional organizations that provide services to the public overall.

The private sector is the part of the economy that is not run by the government. It comprises the businesses and enterprises that are controlled by private individuals and groups for the purpose of making a profit. Companies and organizations run by the state are considered to be the public sector. In free market, capitalist-based societies, the private sector tends to make up a considerably larger portion of the economy than the public sector.

Related TermsPrivatization: What It Is, How It Works, ExamplesPrivatization describes the process by which a piece of property or business goes from being owned by the government to being privately owned. moreFree Enterprise: Definition, How It Works, Origins, and ExampleFree enterprise is an economic system where few restrictions are placed on business activities and ownership in terms of trade and government intervention. moreEntrepreneur: What It Means to Be One and How to Get StartedEntrepreneurs create new businesses, taking on all the risks and rewards of their company. Learn about entrepreneurship and the challenges facing entrepreneurs. moreInfrastructure: Definition, Meaning, and ExamplesInfrastructure is the basic facilities and systems serving a country, city, or area, such as transportation, power plants, and schools. moreGross Domestic Product (GDP): Formula and How to Use ItGross domestic product is the monetary value of all finished goods and services made within a country during a specific period. moreSocialism: History, Theory, & AnalysisSocialism is an economic and political system based on public or collective ownership of the means of production that emphasizes economic equality. moreRelated Articles

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