Question 1
The rise of the private sector has taken course has taken course over the past few years. People have been led to believe that a capitalistic market would indeed provide better goods and services than the public sector. The argument has been based on the corrupt nature of government bodies in handling matters. The result of this argument has seen privatization of many services, driving the public sector out of the way. At a shallow level, this argument seems plausible. The government has been known to misappropriate funds and offer poor services to its citizens. More so, the specialized professionals are mostly found in the private sector, as is the mindset of the public. The people believe that the staff at public sector institutions are not thorough in their work, making them turn to the private sector. However, if one takes a deeper look into the matter, the myth behind this argument can be detected. Current studies have shown that indeed, the public service can be as efficient as, or even better than the private sector (Basu et. al ., 2012).
In Europe, a study was conducted to compare the performance of public companies versus private companies that had a history in the public sector then got privatized. The results showed that these private sector companies actually performed poorly than companies that had remained in the public sector. The private sector is mainly driven by cost efficiency. At a broader view, this translates to job insecurities, pay cuts and constant loss of jobs. This has a major effect on the bigger percentage of the economy. Looking at the telecommunications sector, privatization had increased competition, resulting to benefits such as a variety of networks to choose from and low costs. However, the private telecommunication companies still perform worse than state-owned companies (Basu et. al ., 2012).
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A good example of where the myth of the effectiveness of the private sector is seen is in the healthcare system. Over the years, there has been a rise of private medical institutions that the public has been led to believe are more efficient than the public institutions. A scrutiny into this mindset reveals that privatization of this sector has led to a major rise in the cost of health care (Basu et. al ., 2012). Basu, Andrews, Kishore, Panjabi & Stuckler further argues that private institutions are more of profit-oriented and tend to take advantage of the trust the public has on them. This means that low-income earners suffer due to lack of proper medical services. In the United States, spending on health care services is more than public spending. However, the results are not favorable to the public. In Cuba, the opposite applies and their results proved to favor the public. The public health care system applies economies of scale thus reducing the impact of purchasing expensive equipment on the public taxation. This proves that they are more efficient (2012).
Question 2
A free market economy exists when the prices of goods and services are set by the prevailing demand and supply patterns. In the free market, there is minimal or government intervention. Due to this lack of government intervention, businesses in the free market have freedom to explore their capacities. However, this does not mean that they are free from risk. A number of factors throw businesses back in free market economies (Wu, & Olson, 2010). These factors include innovation, customer drive choices, market failures and dangers in the profit motive. Some of these risks are controllable while some are not. Most business risk are categorized into two, external and internal risks. Internal risks can be controlled while the external cannot be.
One of the internal risk factors that can be controlled is the freedom to innovate. A business in the free market economy has the power to come up with new ideas, products, and services without relying on the government. What is of essence here is to monitor the consumer desires and behavior to come up with a product that will appeal the greater percentage of the population. To achieve this, the staff in a company need to always be at per with changing trends. The problem arises when the staff are lazy, not motivated or have no creativity hence come up with ideas that are not innovative. Such ideas make the company lose its competitive advantage. The solution to this is hiring top talents and encouraging staff members to be more creative and stay at per with the ever so changing needs of consumers (Wu, & Olson, 2010).
On the other hand, an example of an external risk factor that cannot be controlled is market failures. Market failures can be attributed to a number of factors such as the prevailing political weather in a state. If the political environment is in shambles or unpredictable, such as in the election period, it affects the purchasing pattern of citizens, causing harm to businesses. Such factors cannot be controlled by a business from the inside. Thus, they are left to wait for the weather to pass before resuming normal business patters. Uncontrollable external factors make businesses to make losses (Wu, & Olson, 2010).
References
Basu, S., Andrews, J., Kishore, S., Panjabi, R., & Stuckler, D. (2012). Comparative performance of private and public healthcare systems in low-and-middle-income countries: a systematic review. PLoS medicine , 9 (6), e1001244.
Wu, D. D., & Olson, D. (2010). Enterprise risk management: a DEA VaR approach in vendor selection. International Journal of Production Research , 48 (16), 4919-4932.
