Public Sector

Public Sector, in economics, the state, and its agencies. The economic activity of the public sector includes everything that the state (central and local government) or its agencies (nationalized industries, for example) owns or controls. The role and size of the public sector depend largely on what current thinking on what is in the public interest (having first decided what that is). Generally, the public sector comprises a large proportion of a country’s entire economy and can exercise considerable influence on the economy as a whole. In the United Kingdom, for example, the government as the ultimate employer of public sector workers, often endeavours to hold down rises in wages in the public sector to help restrain inflation as informal prices and incomes policy. After World War II, in many countries, governments organized a shift from the private sector to the public sector, but in the 1980s the process was generally reversed with privatization replacing nationalization as the main goal of state policy, even in the former Communist countries of Eastern Europe and existing Communist states such as China. Such policies were generally premised on the assumption that the private sector, its efficiency honed by competition, could provide better services more efficiently and cheaply than the public sector with its penchant for bureaucracy. In some cases, however, governments may choose to retain inefficient public-sector companies for fear of the political or other consequences if these bodies are broken up, as with China, where fear of social instability engendered by mass unemployment keeps loss-making state companies in being.

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