Private sector and public sector

Why can a council swimming pool survive a loss that would close a gym? Your local council pool and the gym chain down the road will both sell you a swim for about five pounds. Suppose both lose money this year. The gym chain may well close that branch, while the council pool will probably stay open. It is tempting to think the council pool must be better run, but nothing in the numbers says so. Same swim, same price, same loss, so why does one keep going? Hold that question about the two pools; the answer turns on something neither ticket shows.

Every organisation can be asked one question: who owns it? The answer puts it in the private sector or the public sector. The private sector is made up of organisations owned by private individuals or by shareholders, the people who have bought a share, or small part, of a company. Sole traders, partnerships, private and public limited companies, and franchises are all in the private sector, and each type gets its own video later in the course. The public sector is made up of organisations owned and controlled by government, on behalf of the public. That government can be central, devolved or local, which means Westminster, the governments in Cardiff, Edinburgh and Belfast, or your local council. State schools, NHS hospitals, the police, fire and rescue, council services such as bin collection and libraries, and the BBC are all in the public sector. In Northern Ireland, hospitals are run by Health and Social Care, known as HSC, rather than the NHS. Your specification may not list these two sectors by name, so check it. The ownership question is useful either way. Now try one in your own words. What does the public sector do for the people of a town like Wrexham? The public sector provides services that everyone needs, whatever they can afford, paid for mainly through taxes rather than by each user. Which means a family on a low income in Wrexham can still send its children to the town's state schools and see a doctor at its hospital, free of charge. That is the public sector's role: services everyone should be able to use, or that would not be provided for a profit. The private sector's role is to provide most of the goods and services people buy, from phones to haircuts. Now sort five organisations with the ownership question. They are a state primary school, a supermarket chain that is a public limited company, a council recycling centre, a self-employed plumber, and an NHS hospital. Which of the five are in the private sector? Take your pick, and hold on to your reason before I show you. Two of them: the supermarket and the plumber. The school, the recycling centre and the hospital are owned and run by government, central or local. The supermarket is a public limited company, or plc. It sells shares to the public, but it is owned by those shareholders, not by government, so it is in the private sector. Public in its name means anyone can buy its shares. It does not mean the public sector owns it. Now the reason behind one of them. The plumber works for members of the public, so why is the plumber not in the public sector? Because ownership decides it, and the plumber owns the business. Serving the public does not put an organisation in the public sector. One examiner's report says many students assumed plc meant publicly owned, which meant they could not score any marks on that question. Another report, on a question about a sole trader, records students wrongly assuming the business was in the public sector. The fix is to ask who owns it, every time. Government means the public sector, while private individuals or shareholders mean the private sector.

Public and private sector organisations can be compared under four headings: ownership, aims, control and finance. Riverside Leisure Centre is run by the local council. FlexFit is a privately owned gym chain. Ownership first. Riverside is owned by the council, so by the public, while FlexFit is owned by its shareholders. Aims next. Riverside aims to give local people affordable exercise and better health, while FlexFit aims to make a profit for its owners, and to grow. Then control. Riverside is run by managers who answer to councillors, the people elected to run local services, while FlexFit is run by directors who answer to its shareholders. Now predict the last heading, finance. Where does the money come from for Riverside, and for FlexFit? Riverside is funded partly by taxes, through the council, and partly by its entry charges. FlexFit is funded by its owners' investment, by loans, and by the membership fees it earns. A compare and contrast answer also wants what they share. Both sell exercise to the public, both employ staff, and both have to manage their money. So the differences sit under four headings, and what the two share completes the answer.

The word sector now has two meanings in business, and each one answers a different question. Private sector and public sector answer the question, who owns it? Primary, secondary and tertiary answer the question, what kind of work does it do? One cafe has both. A cafe owned by its owner is in the private sector, and because it provides a service, it is in the tertiary sector too. Now test both meanings on one place. Which two sectors is an NHS hospital in, one for each meaning of the word? The public sector, because government owns it, and the tertiary sector, because healthcare is a service.

Now a recap, one question at a time, and only one of them repeats a definition.

First, the definition: what is the public sector?

The public sector is organisations owned and controlled by government, on behalf of the public.

Now a bank that is a public limited company. Private sector or public sector?

Private. Its shares can be bought by the public, but its shareholders own it, not government.

Now both meanings at once. A council library: which sector, under each meaning of the word?

The public sector, because the council owns it, and the tertiary sector, because lending books is a service.

Now finance. A state school and a fee-paying private school: where does each get its money?

The state school is paid for mainly through taxes. The private school is paid for by the fees parents pay, and by its owners' money.

Think again about the council pool and the gym chain, each selling a swim for about five pounds. The council pool is in the public sector. It is owned by the council on behalf of the public, paid for partly through taxes, and there to give a service. The gym chain is in the private sector. It is owned by its shareholders, and it needs a profit to survive. That is why, when both lose money, the council can let its pool keep going for the service it gives, while the gym chain's owners may close the branch.

If you could sort the plc without stopping to think, give this a thumbs-up, because this one's yours. If not, save it and come back to it later in the week.

Next in the chapter is The dynamic business world: change, new ideas and consumer power. Hopefully that's next in your feed, but if not, search for ScholaFly B U oh one, oh six.

Every other video is on scholafly.com too, easy to search by video code or by keyword. Whatever you're revising, go there and have a look, or, watch the next video.