Public Sector Businesses

Exam code: 7115

Written by: Ashika|Reviewed by: Caroline Carroll|Updated 2 July 2026

The public sector

The public sector is a key element of mixed economies
Public sector firms are owned and controlled by the government and are usually funded through taxation
Their main goal is to provide services such as education, healthcare or emergency services that may not be provided by profit-focused businesses

Public sector firms operate on a local, regional or national government level
- Transport for London provides local transport in the London region
- Caribbean Airlines operates across several countries in the Caribbean, with ownership shared by the governments of Trinidad and Tobago, Jamaica and Guyana
- Comboios de Portugal provides train services across the country and in to Spain
Governments are likely to retain ownership of organisations in the public sector for several reasons
- They are strategically important to the country, such as the defence or justice systems
- They provide essential services such as water, electricity supply or emergency services
- They are merit goods that may not be provided in sufficient quantities by private businesses, such as education or health services

Public corporations are owned by the government
- They are usually businesses which were once owned by private individuals and have been nationalised
  - In 2022, the German government nationalised Uniper, the country's largest importer of gas, to improve energy security as a result of the conflict between Russia and Ukraine
  - In 2008, the UK government nationalised Northern Rock, a bank which was on the verge of collapse as a result of the global financial crisis
Government ministers appoint a Board of Directors, which manages the corporation
- They are expected to run the corporation according to objectives set by the government
- Although they may be profitable, the aim of corporations is to provide a public service
- Governments should not interfere with day-to-day operations and decisions of the corporation

Advantages	Disadvantages
Government ownership is essential for some crucial or sensitive industries Examples include water, power and communications	Due to a lack of competition, public corporations may become inefficient or have no incentive to improve, affecting consumer choice
Important public services, such as TV and radio broadcasting, are often in the public sector Non-profitable but important programming can be made available to the public	Corporations may become complacent or have an unfair advantage over private sector rivals as they can access government subsidies to help them if they are struggling
The government can choose to nationalise industries that may be in financial trouble Jobs can be secured and consumers will still have access to the important goods or services the business provides	Funding can be cut as a result of political decisions and changes of governments can cause significant disruption to corporation missions and operations

In some cases, profit-making companies are partly owned or controlled by the government
- They sell shares on the publicly listed stock exchanges so they are a mix of the private and public sector
  - In the US, Amtrak (passenger trains) is a state-owned for-profit enterprise whose shares are majority owned by the federal government
Other businesses are funded by central and local government
- They may still levy charges for some services
  - The NHS is free at the point of use for British citizens, but they must pay for medical prescriptions, some procedures and parking on hospital premises
  - The French state funds leisure facilities such as swimming pools and public sports venues but usually charges users a small fee for their use
  - Due to the constraints of government spending in many countries, many services are now being privatised or suffer from insufficient funding