The private sector is recognized for its ability to provide goods and services with much efficiency. Driven by the profit motive, private businesses are able to perform at speeds that the public sector or the non-profit organizations cannot match. Yet, despite the efficiency of the private sector and the attendant cost efficiencies, some services can only be provided by the government and others by non-profit organizations.
Government expenditure is financed from many sources but mainly from tax revenues. Private businesses make their income from the sales generated by their businesses. The relationship between private businesses and the clients is very simple – the client pays to obtain goods or services. Where the client fails to pay, the goods are services will not be supplied. The government, on the other hand, maintains some kind of coercive relationship with the citizens.
The latter know that they will have to pay taxes and other levies that the government imposes. Failure to pay taxes could result in many forms of punishments, including imprisonment.
While the private sector is ideal for providing some goods and services some services are best supplied only by the government. Involvement of government in the provision of goods and services is guided by several factors.