Generally speaking, the public sector refers to the wide range of economic and social activities undertaken by the central government, state government, municipalities and other public bodies. The public sector is usually being guided by social and public welfare objectives. Its primary objective is the promotion of social and economic interest for the community as a whole.
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The private sector, on the other hand, stands for the economic and social activities, performed under private ownership. The most important objective of the private sector is to maximize private profit. The private sector is not completely free from state regulation. There are certain positive controls and negative controls through which the government regulates this sector. Positive controls take the form of various incentives and inducements provided by the state, in the form of subsidies, tax holidays, easy credit facilities, technical assistance, etc., for the promotion of private investment and private enterprise. The negative controls aim at limiting private economic activities through administrative restrictions.
Factors responsible for the expansion of the Public sector :
Expansion of the public sector is a universal phenomenon. The state today no longer plays the role of the “night watchman” even in the capitalist countries. According to one estimate, the state’s share in the production of the final social product in the early seventies was 35 per cent in West Germany, 49 per cent in England, 40 per cent in France, 37 per cent in Italy, 21 per cent in Japan and 22 per cent in the U.S. Initially, the public sector was limited to provide some public utilities and services. But the centre of gravity has shifted towards production.
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In the developing countries also the growth of public sector has been phenomenal.
1. Desire for Rapid Economic Development :
The underdeveloped countries desire to develop their economies of a fast rate. But “the extent of structural change unnecessary to achieve a high rate of economic development far exceeds the resources of local private enterprise and spontaneous market machinery.” So from the very beginning the only agent for modernising the productive forces of these countries has been state entrepreneurship. Thus we find that in countries like Brazil, Argentina, Mexico, etc., the key branches of the economy mostly belonged to the public sector. Even the public sector comes forward to encourage the public sector, by providing with different inputs and services, although it may sound paradoxical.
2. Avoid Concentration of Economic Power :
In most of the developing countries in Asia, Africa and Latin America, private enterprises are controlled by a very small group of people. In India, for instance, in the seventies 35 per cent of the assets of all private companies were controlled by eight business houses. In Iran 45 families controlled 85 per cent of the largest companies in 1977. Concentration of economic power is the private sector is also seen in countries like Ecuador, Turkey, Brazil, Mexico, Argentina, etc. The most effective remedy for such concentration perhaps would have been outright nationalisation.
But as the private sector exercises a lot of political, economic power, it may not be an easy task. So to provide an alternative or counterbalancing force for economic power, the public sector comes to the picture. As Myrdal writes ‘ “The growth of the public sector in India is intended to counteract the concentration of private economic power.”
3. Failure of Market Forces :
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The market forces regulate the economic life in a private enterprise economy. “However, in developing countries, the market—whether of capital equipment, goods or the work force—cannot be a regulator of economic life, because of the widespread barter, underdeveloped division of labour, poor flexibility in the supply of goods and services, and primitive market structure generally represents the circulation of consumer goods which are mostly imported.”
4. Industrialization :
Industrialization is the most important requisite for economic development. Industrialization in the developing countries necessitates the extension of the public sector. “In the developing countries the state is the only force that possesses the necessary levers for influencing the economy, the means for mobilising and properly utilising financial, natural, labour and material resources, applying scientific and technological achievements and overcoming a number of difficulties and contradictions typical of developing countries. Owing to these factors, its functions are not confined to regulating the economy ; it has been taking an increasing and direct part in its industrialization.”
In countries like Brazil, Mexico, Argentina, Egypt and Turkey, etc. also the public sector has been used as a major instrument for industrialization.
5. Agricultural Development :
Agricultural development occupies an important place in the plan of economic development. Almost as a matter of rule, the responsibility for the development of agriculture falls on the state, “In a majority of the developing countries the public sector influences the development of agriculture mainly by introducing up-to-date agricultural techniques, mechanically methods of processing primary raw materials and other technological achievements into the practical activities of co-operatives and private firms.” In modernizing agricultural production, a number of special institutions and organisations have been created in these countries. India has a network of such organisations within its public sector. In the development of agricultural sector, the influence of the private sector is likely to increase further in these developing countries.
6. Promotion of Science and Technology :
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Scientific and Technological revolution has an important bearing on economic development. Now it is the public sector that has become the instrument for the development of science and technology and also the vehicle for the application of scientific and technological achievements in industrial and agricultural production. Although in the developing countries in the beginning, the scientific potential may not be very significant but it is mostly confined to the public sector.
7. Planning :
Economic planning also has provided a stimulus to public sector in many countries during the post-Second World War period. Expansion of the public sector is essential to make planning more effective.
8. Public utilities :
There are certain types of services known as public utilities. Electricity, city transportation, water supply, railways, etc., are the examples of public utilities. The provision of these services need huge investment. They are also monopolistic in nature. It has been realized that these services can be provided efficiently, economically and continuously only when the public utilities will be owned and operated by the state. So even in the capitalist countries, such public utilities invariably operate in the public sector.
9. Resource Allocation :
The nature and pattern of resource allocation has an important bearing on economic development. The main reason for the expansion of the public sector in India, for example, lies in the pattern of resource allocation fixed in the plans. The nature and volume of public investment substantially affects the tone and texture of economic activity.
10. Prevent Exploitation :
Sometimes the monopolist private producers have a tendency to reduce their output and raise the prices, and thus exploit the consumers in the process. Public takeover through nationalization is a method by which exploitation of consumers can be prevented. To protect the interest of the passengers, road transport has been nationalized in many states in India. Similarly, to protect the interests of the workers, sometimes enterprises may be taken over by the state. For example, 13 losing ‘sick’ textile mills were nationalized mainly to provide employment to the workers concerned.