Public Sector

The public sector is defined as the portion of the economy composed of all levels of government and government-controlled enterprises. Therefore, it does not include private companies, voluntary organizations, and households.

While the notion of the public sector is often used to classify distinct areas of economic activity, for example, in the area of national accounting, it also implies a definition of public activity that goes beyond the core domains of public administration. The general definition of the public sector includes government ownership or control rather than mere function, thereby including, for example, the exercise of public authority or the implementation of public policy.

When pictured as concentric circles, the core public service in central and subnational government agencies defines the inner circle of the public sector. In this case, the distinction of the public from the private sector is relatively straightforward—it is evident in terms of employment relationships and the right of exercising public power. The next circle includes a number of different quasi-governmental agencies that are, however, placed outside the direct line of accountability within government. Examples range from social security funds to regional development agencies. The outer circle is populated by state-owned enterprises, usually defined by the government's ownership or its owning the majority of shares. Since the 1980s, a number of developed countries have witnessed extensive privatizations of state-owned enterprises, whether in parts or in full (examples range from airlines to the telecom sector), although public ownership continues to be a widespread feature, for example, in the field of local public transport.

The term public sector is also used for analytical purposes, in particular, as a contrast to the private and third, or voluntary, sectors. This allows for the mapping of the scope of state activities within the wider economy (also allowing for comparison across space and time). Furthermore, it highlights distinctive patterns and operating procedures within the public sector. This relates to the contemporary interest in cross-sectoral learning, especially the learning of “private” management practices for application in the public sector.

Among the key themes of public-sector research is its growth, and whether growth is inherent to the public sector. For example, William Baumol identified a publicsector “disease,” suggesting that those activities characteristic of the public sector were those that could not be “automatized,” therefore leading to lower productivity gains in comparison to the private sector. William Niskanen linked public-sector growth to the incentives of budget-maximizing bureaucrats. Others have focused less on public-sector size overall, but on the relationship between the different circles of the public sector. Patrick Dunleavy's “bureau-shaping” model points to incentives among politicians and senior bureaucrats to shuffle institutional responsibilities from the first to the second circle of organizations.

The notion of governance highlights the difficulties in defining what the public sector is. Privatization, delegation of public power (for example, in prisons), the joint public-private provision of services, usually regarded as “public,” as well as institutional rearrangements have made the identification of the public sector difficult, especially for purposes of [Page 777]comparative analysis. For some, therefore, the notion of the public sector has lost all conceptual strength, given these problems of defining clear boundaries.

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