PRIVATE SECTOR

Private individuals and organizations in the United States generate most economic activity involving the production of goods and services. Independent ownership and control define the private sector. Independently owned firms, ranging from large corporations to single individuals within a household, manage their privately owned capital resources to make a profit. Examples include all Fortune 500 corporations such as General Motors and IBM, the local flower shop and a small retail clothing store, the vineyard owner and peanut farmer, the consultant working from a home office and the neighborhood babysitter. Also included in the private sector are non-profit organizations including private colleges and universities and the Catholic Church. In contrast, the public sector includes all governmental activities and local, state, and federal government employees such as postal workers and public school teachers.

In the United States the private sector firms produce, for profit, the majority of goods and services. A business for profit may be organized as a proprietorship, a partnership, or a corporation. In a proprietorship one person owns all the assets and liabilities of the firm. A partnership has two or more owners, both responsible jointly and separately for all assets and liabilities. A corporation is a chartered legal entity with shareholders who are liable only for what they have invested in the firm. In 1993 proprietorships accounted for only six percent of total sales, although they accounted for 75 percent of the total firms. Corporations accounted for 19 percent of total firms but 90 percent of total sales.

Interaction among private sector firms depends on the organization of their entire industry. Industry is defined as firms producing similar products. Types of industry organization generally fall into four categories: competitive firms, monopolistic competitors, oligopolies, and monopolies. Their numbers, product differentiation, price setting power, ease of entry into the industry, and specific distinguishing characteristics differentiate the four.

The U.S. economy, from 1939 to 1980, shifted toward competitive firms. Approximately 77 percent of the firms by 1980 were effectively competitive businesses, 18 percent were oligopolies, and only 5 percent were of the monopolistic organizational type.

From 1970 to 1997 private sector firms experienced a major shift in industry type. Judged by number of employees, manufacturing continuously shrunk, while the service sector greatly expanded.

See also: Public Sector