Posted: March 12th, 2023




What are some fundamental differences between Public and Private Sector Budgeting practices?

While both public and private sectors use budgets as a key planning tool, public bodies balance budgets, while private sector firms use budgets to predict operating results. The public sector budget matches expenditures on mandated assets and services with receipts of public money such as taxes and fees. If a public sector budget doesn’t balance, they have to cut services, raise taxes or borrow the difference. In the private sector, they forecast revenues and expenses to estimate how much profit the company will make. Public-sector organizations focus on services to the public as a whole, including education, security, safety, welfare, the legal system, natural resources, public transportation, infrastructure, food security, social housing, and health services. On the other hand, private-sector businesses are owned and managed by private individuals or enterprises, businesses within this category focus on entrepreneurial activities, taking risks to create jobs and generate a profit. They are competitive and they have an incentive to be efficient.

Many political candidates profess that government should be run more “like a business”.  What is your reaction to this statement?

The private sector has markets and a profit motive to drive innovation and efficiency. Can such an approach translate to government? Profit-driven behavior encourages innovation, efficiency, and change in the private sector. The nature of the government is considerably different. It must respond to a wide range of conflicting interests, including political ones. Governments experience all kinds of pressures that cannot be imagined in many enterprises, especially the entrepreneurial kind. This question has been asked several times and its ideas have been implemented even recently. For example, Donald Trump ran his campaign with the promise to manage the U.S. government like a business. Running government like a business has been tried again various times and typically ends up failing. Another example of this was in the 1960s, Robert McNamara introduced the Planning-Programming-Budgeting System as a “one-best-way,” businesslike approach to government. This business orientated approach led to many negative consequences, which leads me to believe that the government should not be ran like a business. 

What might be some impediments to this idea?

There are many differences between businesses and government that make it nearly impossible for the government to operate like a business. First off, their goals and incentives are very different. Leaders make decisions differently in businesses and in government. Decisions are made by consensus in a representational democracy like the United States. In a business, the power to make decisions tends to be more centralized. An important idea to note is that people are free to decide to patronize businesses voluntarily, but they are required by law to pay money to government. If a person thinks that a price of a good or service is too high, then they will choose not to pay. If a person thinks that taxes are too high, it doesn’t matter; they must pay them or face legal consequences.


What are some fundamental differences between Public and Private Sector Budgeting practices?

The public sector budget is much different than the private sector budget. Private organization’s budget is intended to maximize profit, while the public budget is based on servicing the community with other people’s money. Private sector organizations are owned, managed, and controlled by individuals, businesses, or groups. Public sector organizations are owned, managed, and controlled by the government or other state run agencies. The private sector’s aim is to make a profit while the public sector deals with many things that are not profitable. For the private sector to be profitable, they must get the greatest possible dollar return on investments. Since the public sector deals with most things that are unprofitable, “governments may be intentionally inefficient in resource allocations, undertaking services that the private sector would be reluctant to provide at all” (Lee et al., 201


. Both the private and public sector must answer to their investors and clients. In the private sector, individuals, businesses, or groups can separate themselves from organizations and in the public sector they are not allowed to do this except in extreme circumstances like emigration.

Many political candidates profess that government should be run more “like a business.” What is your reaction to this statement? What might be some impediments to this idea?

In my opinion, the government should not be run “like a business.” The government is for the people and their interests, and the private sector only cares about their investors and customers. The government’s performance is measured by the effectiveness of outcomes versus the private sector is measured on profitability and how much money they can make. The main goal for corporations is to make profits and the government’s focus is providing for all its citizens. The government is a lot fairer to people in the ways they do things than businesses are. I think it would be ineffective to run the government like a business because it wasn’t designed that way. Governments provide services and functions that the private sector wouldn’t do because it doesn’t make them any money.


What effects do recessions have on public sector budgets?  

Recessions impact public sector budgeting on all aspects due to the fact that they rely on funding and goods in order to provide services. The public sector undertakes the most direct spending on public goods and services (including their expenditures from federal funds), and they bear primary responsibility for investments in education, social services, and infrastructure that directly affect our national economy and quality of life. State and local budgeting often decline in an economic recession, but federal grants may help to offset some losses. A hallmark of economic recessions is that, just as revenues decline, demands for many types of spending, particularly those involving public welfare, intensify. In general, when governments face an operating deficit or a projected gap between revenues and expenditures, they can raise revenues, cut spending, or draw down budget reserves to close the gap. Public sector’s largest expenditure items are education, public welfare, health, and hospitals. The federal government allocates 17 percent of its budget to state and local grants (national income and product accounts,2011). States and localities then use these funds to provide health care, income support, education, and other services to their residents. During a recession budgeting for these necessary services is challenged due to the sudden decline in revenue, which causes the public sector to devise alternative measure to compensate for this lose. Unlike the federal government, state and local governments are generally expected to balance their budgets. Many states are constitutionally prohibited from carrying a deficit forward into the next fiscal year. Thus, in addition to relying on enhanced federal funds, states and localities typically raise revenues, cut spending, or draw down reserves to close projected budget gaps. The major effect seen with recessions on the public sectors budget is the need to reduce spending. For example, during 2011 great recession spending cuts fell predominantly in education, health, and social services, where states dedicate most of their budgets. Between fiscal years 2008-09 and 2010-11, the Center on Budget and Policy Priorities reports that 34 states reduced expenditures on K-12 education, 43 cut college and university expenditures, 31 lowered health care expenditures, 29 cut services to the elderly and disabled, and 44 reduced employee compensation. Undoubtably, recessions limit the public sector’s ability to provide essential services to citizens, which makes it even more important to have programs that aid budgeting during those sensitive times. 

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