What's the difference between private sector and public sector investment spending?

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  • 3 years ago
    Best Answer

    Private sector investment spending (for example opening a warehouse) is allocated based on projected return on investment to a company that is owned by individuals or groups of owners known as shareholders.

    Private sector investment can result in bad decisions but *usually* the darwinism of business competition eliminates companies or managers that make too many bad allocations of financial capital.

    One exception is when you have poor company oversight and the people who are supposed to be watching managers and protecting shareholders (called the board of directors) are insiders who allow waste to occur at the expense of shareholders.

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    Public sector investment spending (ie put in a new bridge) is based on public needs, safety, or can be a effort to stimulate economy.

    One problem with public sector spending is that money is not allocated based on economic soundness or true priority needs of the people, but usually as a result of lobbying by a politicians constituents or special interest groups. ("unintended consequences")

    This is magnified even more for federal spending because people in "State A" could end up funding (through federal taxes) a wasteful pet project in "State B" because "State B"'s congressional representative is more politically connected.

    Unlike a private company or private company manager who goes out of business/gets fired for wasting money, a politician that brings federal $ for a wasteful project to their district gets rewarded by getting reelected.

    Another problem is that there is not sufficient motivation for public officials to run projects cost effectively so even a "good project" can end up being wasteful.

    There are however a large number of worthy projects that do get funded by the public sector and in the USA there is talk of current efforts to make public funding more transparent and competitive.

    (sorry for long answer)

  • Jeff D
    Lv 7
    3 years ago

    With private investments, people are investing their own money. They have a direct interest in selecting sound investments and ensuring that they succeed, and they bear the full consequences for poor decisions. With public investments, some politician or bureaucrat is investing taxpayer's money. They have less incentive to pick sound investments or to ensure that they succeed, and rarely face any consequences for poor decisions.

  • 3 years ago

    FREEDOM.

  • Anonymous
    3 years ago

    Private sector is when investors invest in businesses. Public sector is when government invests in public assets like Roads or Defense.

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