The Importance of the Public & Private Sectors (Edexcel IGCSE Economics)
The Relative Importance of each Sector
Spec point —
1.1.5i
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Most economies have a mixture of public and private sector provision of goods and services
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The United States and Japan are have a smaller public sector than Norway, Germany or China
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The USA leans towards a free market economy
- E.g Private firms often provide education and healthcare
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Countries with a large public sector include Cuba and China
- The government exerts a high degree of control of key sectors such as banking, airlines, communications, energy production and manufacturing
Benefits of a Large Public Sector
| Benefit | Explanation |
|---|---|
| Provision of goods and services | - A large public sector makes it easier to provide public goods efficiently - This ensures that essential goods and services are accessible to all citizens, contributing to overall standard of living - E.g China invests heavily in public infrastructure projects and healthcare and education for its citizens |
| **Employment ** | - Many** jobs are guaranteed** by the state, providing employment - In China, state-owned enterprises are major employers, offering job security |
| Reduce negative externalities | - State control over key sectors allows governments to regulate and reduce negative externalities - E.g Cuban government control over the economy enables it to regulate environmental pollution and ensure sustainable development practices |
Comparison of Public Sector Sizes
Spec point —
1.1.5i
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The size of the public sector can be measured by considering
- GDP per capita spending on the public sector
- The number of employees per 1,000 of the population
Graph: Public Sector Employees by Country
Source: France stratégie
Graph analysis
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Nordic countries, such as Norway, Denmark, Sweden and Finland have larger numbers of employees in the public sector
- This indicates that their government allocate a considerable amount of government revenue towards the provision of merit and public goods
- These countries frequently rank at the top of quality of life indexes, as result of their excellent education and healthcare systems
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In contrast, the UK and USA have a smaller number of employees in the public sector
- This indicates that USA and UK government allocate less revenue towards the provision of merit and public goods
- USA and UK rank lower in quality of life indexes, reflective of less spending on education and healthcare
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Countries like Norway prioritise the public sector and provision of goods and services
- Particularly in the provision of healthcare, educations and social welfare
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Data would suggest that many countries with a larger public sector enjoy a better quality of life and its citizens are happier
- Usually, the larger the public sector, the higher the level of taxes
- This is one reason why capitalists and free market economists argue against having a larger public sector
Exam Hint The material on this page is frequently examined in the Paper 1 structured questions. You will be asked to analyse a large public or private sector of a country in a given scenario. Consider how large public/private sector impacts the provision of public goods, employment and negative externalities
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