Difference between public & private enterprise

Written by laura bramble
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Difference between public & private enterprise
The main differenece between public and private enterprise is the degree of government involvement. (the capitol hill building in Washington dc image by Gary from Fotolia.com)

Enterprise forms the economic backbone of a nation--it is the businesses or trade that produces the wealth and status of a nation. Enterprises can be owned by two factions: the public or private citizens. Though there are fundamental differences between the two, some enterprise benefits by being publicly owned and others by being privately held.

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Public Enterprise

Public enterprise is an enterprise or business owned or controlled by the public. This typically means government ownership or control. 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, every citizen has 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 final say on the directors of the enterprise and the major policy decisions. Any profits are either funnelled back into the company, or they go into the government coffers.

Private Enterprise

Private enterprise is an enterprise owned or controlled by private citizens. This can be anything from sole ownership to large publicly traded corporations. Private enterprise means that there is no government controlling interest or ownership. The owners choose the board of directors of a private enterprise, and profits are dispersed 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.

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 infuses significant capital into a private corporation in return for use of the technology in military and government applications, are an example of this.

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 cannot 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 and 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 pressing need for these enterprises to cater to the desires of the consumer or to innovate. This increases the potential for inefficiency.

Private Pros/Cons

Private enterprise is constrained by competition in the free market and the reach for greater profits. It is forced to innovate and to keep the consumer happy or risk going out of business. Since it has to operate profitably, private enterprise must maximise 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, profit-driven motivations sometimes encourage 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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