Difference Between Public & Private Enterprise

  Reviewed by: Michelle Seidel, B.Sc., LL.B., MBA
  Written by: Laura Bramble      Updated November 08, 2018
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Enterprise forms the economic backbone of a nation. It is the businesses or trade that produces a nation's wealth and status. Enterprises can be owned by two factions: the public or private citizens. Though there are fundamental differences between the two, some enterprises benefit by being publicly owned and others by being privately held.

Public Enterprise

A public enterprise is an enterprise or business that the public, often the government, controls. Since the government is an agent of the people, or public, ownership by the government is the ultimate form of public ownership, particularly in a democratic nation. In theory, you and every other citizen have an ownership interest in a government-owned or controlled public company. This is not limited to federal governments; locally owned or controlled enterprises, such as municipal water and sewer companies, are also public enterprises. The government has the final say on the directors of the enterprise and major policy decisions. Any profits are either invested back into the company, or they go to the government.

Private Enterprise

A private enterprise is one that private citizens own or control. This can be anything from sole ownership to large publicly traded corporations. Rather than the government, the owners choose the board of directors of a private enterprise, and profits distributed among the owners or shareholders. The government has no direct say in the running of the enterprise. This type of enterprise is also known as free enterprise.

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Joint Ventures

Many large concerns that affect the public are joint ventures between the public and private sectors. Enterprises that require a large amount of start-up capital but that will not show a lot of short-term income are the type of enterprises that fit this definition. Joint technology initiatives, where the government invests significant capital into a private corporation in return for use of the technology in military and government applications, are one example.

Public Pros/Cons

Public ownership and control is beneficial in enterprises that are too big and important to society to allow for the development of significant competition. These types of enterprises, such as utilities or transit systems, cannot operate with a high degree of profit to operate effectively or require huge amounts of cash to start without a large return. These types of enterprises do not interest most investors, but society would struggle to function without them. Government, since it operates for the benefit of the public and not under a profit motive, will take the responsibility for these enterprises. It has the ability to fund any shortfalls with tax money, so the enterprises will not fail, and society’s needs are securely met. However, since there is no competition, there is no urgent need for these enterprises to innovate or cater to consumer desires. This increases the potential for inefficiency.

Private Pros/Cons

Private enterprises are driven by competition in the free market and the reach for greater profits. They are forced to innovate and to keep the consumer happy or risk going out of business. Since it must be profitable, a private enterprise must maximize efficiency, which eventually trickles down to lower prices for consumers. Competition and the drive for efficiency promote innovation and the development of new technologies. However, the motivation to earn profits sometimes encourages enterprises to choose profit over societal concerns such as safety, health or ethical concerns. In its worst form, short-term profit takes precedence over long-term interests.

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