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Differences between the public and the private sectors? Reviewing the myth
Is the public sector different from the private sector? Or rather, how do they differ from one another? And, more importantly, what is the point of differentiating between them? In order to answer these questions, a review has been conducted of the literature published over the last two decades on the differences between the public and the private sectors. The analysis is presented below.
10/01/2011 - Marc Esteve & Tamyko Ysa

The idea that the public and the private sectors are very different has been expressed in organisation theory for many decades. Perry and Rainey (1988) illustrate this fact by recalling the etymological distinction between the terms public and private. In Latin, publicus means pertaining to the people, in contrast with the term privatus, which means set apart. Most of the studies of this field focus on specific variables that can differ between the two sectors (see, for example, Ring & Perry, 1985; Perry & Rainey, 1988; Nutt, 1993, and Scott & Falcone, 1998), but very few have tried to describe the sectors from a global and integrated perspective (Perry & Rainey, 1988; Rainey & Bozeman, 2000, and Boyne, 2002). Moreover: these last few studies have not taken into account the progress made in the differentiation between the public and private sectors over the last few years.

Therefore, this article reviews and analyses the publications from the last two decades in order to characterise both sectors. The review focuses on academic publications indexed in the Social Science Citation Index®, and published between 1989 and 2009, which concentrate on analysing the differences between the public and the private sectors. Using these criteria, a total of 41 articles were reviewed, as shown in Figure 1.

 

Figure 1: Articles included in the review

Source: The authors.

 

Figure 1 also shows how the differences between the public and private sectors have constituted a thought-provoking topic in public management publications over the last two decades; and an even larger number of publications if we take into account the fact that our review did not analyse any studies on differences between the public and private sectors published in journals not indexed by the Social Science Citation Index®.

 

Differences between the public and the private sectors

The results of the review are presented in two different analysis units: the organisation and the individuals within the organisation.  Similarly, when looking at the individuals within the organisation, we differentiate between managers and employees.

 

- On the organisational level:

One of the main characteristics of the public sector is the large number of formal processes that appear to be essential to ensure that it functions. Furthermore, not only do these processes display more degrees of formalisation, they also involve more red tape. Red tape can be defined as the “rules, regulations and procedures that remain in force and entail a compliance burden for the organisation but have no efficacy for the rules’ functional object” (Bozeman, 1993). According to Kurland and Egan (1999), public organisations have higher levels of red tape, because authority is divided among three main branches: executive, legislative and judicial. In order to prevent the abuse of power and to ensure the transparency of organisations “that belong to everyone”, the degree of formalisation of the public sector far exceeds that of the private sector. And none of the studies analysed shows any downward trend in these differences (Baldwin, 1990; Bretschneider, 1990; Rainey & Bozeman, 2000, and Feeney & Bozeman, 2009).

The second major subject analysed in many of the studies in our sample is the specificity of the objectives of the organisations in both sectors. What perception do the managers have of the objectives that they have to meet? Although the results have sometimes differed, Boyne (2002) concludes that public organisations have more ambiguous objectives and, therefore, as Lan and Rainey (1992) point out, it is more difficult to calculate to what extent they are met.

 

- On the managerial level:

One important factor that differentiates the managers of public organisations from those of private organisations is the decision-making process. For example, Schwenk (1990) analyses the way in which managers in each sector interpret the appearance of conflict over a strategic decision. The author suggests that the managers of private organisations see conflict as a negative sign, because it indicates that some members of the organisation do not believe that the results of the strategic action are positive.

On the other hand, for managers in the public sector conflict in a strategic decision has a positive component, since it shows that different stakeholders are participating in the process, thereby ensuring that the final decision will represent their interests, or at least take them into account. Along these lines, the experiments carried out by Nutt (2006) show that public sector managers value consultative practices far more highly when making decisions related to budgets. Private sector managers, on the other hand, prefer to use analytical practices.

The explanation for this may lie in the managers’ social mission within their respective organisations. The ultimate goal of a public manager is to maximise the collective value. The manager of a private organisation, on the other hand, prefers to adopt the theory of rational choice, in order to maximise the company’s shareholders’ wishes (Mort, Weerawardena & Carnegie, 2003).

 

- On the employees’ level:

Many studies have focused on the differences between employees in the public and private sectors. In general terms, public sector employees place higher a value on carrying out tasks that are of use to society compared with their counterparts in the private sector. On the other hand, private sector employees place higher a value on the economic rewards they receive (de Graaf & van der Wal, 2008).

De Graaf and van der Wal’s results illustrate the notion of the public sector ethos, a concept that tries to define the characteristics that make public sector employees unique. Aldridge and Stoker (2002) describe it in the following way: a) a performance culture a strong commitment to serve for individuals and the community; b) a commitment to accountability:  a great emphasis on open access to information; c) a capacity to support universal access: recognition of the special responsibility to support the rights of all service users in an environment; d) responsible employment practices; and finally, e) a contribution to community well-being.

 

Conclusion

The main advantage of having an understanding of the differences between the public and private sectors is that it can facilitate the transfer of management practices from one sector to another. In the approach preferred by new public management, the public sector appears to be adopting practices that are often attributed to the private sector in order to achieve greater efficiency. Nevertheless, this affirmation should consider an approach that can be adopted by both sectors and thus reduce the differences between them. However, in this review of the literature, no rapprochement was found between the two sectors. Does this mean that private sector management practices have not really been implemented by public organisations? We do not think so, and believe that the true reason is the way the studies, which analyse the differences between the two sectors, have been designed. The great majority of the studies analysed are based on data extracted from questionnaires, many of which come from Anglo-Saxon countries. These are not accurate enough to allow us to determine how organisations have evolved or indeed whether they have done so. Therefore, we consider that there is a need for other designs such as in-depth interviews and experimental designs, to enable the evolution of the differences between the two sectors to be studied and, even more importantly, in order for the practical implications to be identified and understood.

 

 


Marc Esteve is a PhD student at the Institute of Public Governance and Management at ESADE and Visiting Researcher at Cardiff Business School. Tamyko Ysa is the Principal Researcher in the Research Group for Leadership and Innovation in Public Management (GLIGP) at ESADE.

 

 

References:

Aldridge, R.; Stoker, G. (2002). Advancing a New Public Service Ethos. London: New Local Government Network.

Baldwin, J. N. (1990). “Perceptions of Public versus Private Sector Personnel and Informal Red Tape: Their Impact on Motivation”. The American Review of Public Administration, 20(1), 7-28.

Boyne, G. A. (2002). “Public and Private Management: What's the Difference?” Journal of Management Studies, 39(1), 97-122.

Bozeman, B. (1993). “A Theory of Government ‘Red Tape’”. Journal of Public Administration Research and Theory, 3(3), 273-303.

Bretschneider, S. (1990). “Management Information Systems in Public and Private Organizations: An Empirical Test”. Public Administration Review, 50(5), 536-545.

de Graaf, G.; van der Wal, Z. (2008). “On Value Differences Experienced by Sector Switchers”. Administration & Society, 40(1), 79-103.

Feeney, M. K.; Bozeman, B. (2009). “Stakeholder Red Tape: Comparing Perceptions of Public Managers and Their Private Consultants”. Public Administration Review, 69(4), 710-726.

Kurland, N. B.; Egan, T. D. (1999). “Public v. Private Perceptions of Formalization, Outcomes, and Justice”. Journal of Public Administration Research and Theory, 9(3), 437-458.

Lan, Z.; Rainey, H. G. (1992). “Goals, Rules, and Effectiveness in Public, Private, and Hybrid Organizations: More Evidence on Frequent Assertions About Differences”. Journal of Public Administration Research and Theory, 2(1), 5-28.

Mort, G. S.; Weerawardena, J.; Carnegie, K. (2003). “Social Entrepreneurship: Towards Conceptualisation”. International Journal of Nonprofit & Voluntary Sector Marketing, 8(1), 76-88.

Nutt, P. (1993). “Organizational Publicness and Its Implications for Strategic Management”. Journal of Public Administration Research and Theory, 3(2), 209-231.

Nutt, P. (2006). “Comparing Public and Private Sector Decision-Making Practices”. Journal of Public Administration Research and Theory, 16(1), 289-318.

Perry, J. L.; Rainey, H. G. (1988). “The Public-Private Distinction in Organization Theory: A Critique and Research Strategy”. Academy of Management Review, 13(2), 182-201.

Rainey, H. G.; Bozeman, B. (2000). “Comparing Public and Private Organizations: Empirical Research and the Power of the A Priori”. Journal of Public Administration Research and Theory, 10(2), 447-469.

Ring, P. S.; Perry, J. L. (1985). “Strategic Management in Public and Private Organizations: Implications of Distinctive Contexts and Constraints”. Academy of Management Review, 10(2), 276-286.

Scott, P. G.; Falcone, S. (1998). “Comparing Public and Private Organizations - An Exploratory Analysis of Three Frameworks”. American Review of Public Administration, 28(2), 126-145.

Schwenk, C. R. (1990). “Conflict in Organizational Decision Making: An Exploratory Study of Its Effects in For-Profit and Not-For-Profit Organizations”. Management Science, 36(4), 436-448.

 

 

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