Understanding the difference between private and cooperative sectors is very important for commerce students as these two sectors play a major role in any economy. Although both try to generate wealth and provide services, they work on different principles. The private sector maximizes profit, while the cooperative sector emphasizes mutual benefit and collective welfare. This article will further their definitions and key differences by providing examples to understand these concepts better.
What is Private Sector?
The private sector is that part of an economy owned, managed, and controlled by private companies or individuals instead of the government. It aims to be profitable and create wealth for its owners or shareholders. Private sector businesses operate from small shops to large-scale multinational corporations such as Reliance Industries, Tata Group, and Infosys in India.
Types of Private Sector Organizations
Private sector organizations vary in size, structure, and ownership. The significant types with distinct features define how they go about their business operations and management.
- Sole Proprietorship: A person owns the business and its management; he owns a corner grocery shop nearby. He pockets all the earnings; he, however, risks everything.
- Partnership Firms: Owned by two or more people sharing profits and liabilities. Partners pool up their expertise and resources to start and run the business.
- Private Limited Companies (Pvt Ltd): This is a business with limited liability owned by private shareholders. Its shares are not available to the public and are held privately.
- Public Limited Companies (Ltd): Those companies whose shares are traded on the stock exchange. These companies have to follow stringent rules and regulations set by the government.
- Multinational Corporations: Large businesses which operate in different countries. They have offices, factories, or branches located around the globe.
What is Cooperative Sector?
The cooperative sector is a group of organizations owned and controlled by people coming together voluntarily to meet their day-to-day economic, social, and cultural needs. Its prime focus is not on profit but in the interests of its members. Some of the examples include AMUL, IFFCO, and Indian Coffee House.
Types of Cooperative Societies
A cooperative society is a group of people with shared interests and objectives coming together to achieve common goals. There are the following major types of cooperative societies, all designed to fulfil the needs of their members:
- Consumer Cooperatives: Supply essential commodities to members at cost (supermarkets). They focus on customer welfare rather than profits.
- Producer Cooperatives: Produce and sell through collective ownership by the producers (e.g., AMUL). The resources are shared to reduce costs and improve earnings.
- Credit Cooperatives: Financial services, loans, for instance, at lower rates than other banks’ interest rates. Cooperative banks are a means of achieving financial inclusion, particularly in rural areas.
- Housing Cooperatives: Assist members in acquiring affordable housing. Members own the property collectively and share maintenance responsibilities.
- Marketing Cooperatives: Marketing cooperatives assist farmers and small producers in marketing their products. They enhance sales through better access to markets and fair prices.
Difference Between Private and Cooperative Sector
Even though both the private and cooperative sectors contribute to economic development, the two industries show significant differences in ownership, objectives, and management styles. Let us explore the difference.
Ownership
In the private sector, individuals or private companies own businesses. A private company can be owned by one person, a family, or a group of investors. They have complete control over the operations and decisions of the company. The owners invest their money and expect to make profits in return.
In the cooperative sector, it is owned in common. The owners are a group of persons jointly referred to as members. They, as members, own and control the business through equal shares. They share similar rights and contribute toward achieving each other’s desirable goals except for purely personal gains.
Objective
The objective of the private sector is to generate profits. Private businesses try to earn as much money as possible. They sell goods or services to customers to maximize their income and growth. The profit helps the company expand and rewards the owners.
The cooperative sector views its members’ welfare as its primary concern. Cooperatives prefer a profit outcome that ensures each member benefits rather than their sole concern being money making. They try to meet the needs of their members, such as providing affordable goods, services, or support.
Decision-Making
In private businesses, all decisions are centralized. Owners or top managers decide everything. They strategize and set goals. They also run the day-to-day activities. Their subordinates obey them according to the decisions made by the leadership.
The cooperatives are democratic in their decision-making process. The power is divided equally, as every member has an equal vote and say in the decisions. All members attend the meetings, sharing ideas and voting on the key issues; this system makes fairness possible since no single person has more power than others.
Profit Distribution
In private business, the money flows to owners or shareholders, whereby the number of shares they hold will be contributed to profit generation. Whosoever owns shares determines when the profit is re-invested and what share is personal income to take out at his discretion.
In cooperatives, profits are shared among members. The sharing is based on the participation of each member in the cooperative. Members who contribute more to the success of the cooperative receive a larger share of the profits.
Government Role
Private businesses experience minimal interference from the government. They are allowed to operate with fewer rules and regulations. The government ensures that private companies abide by legal and tax obligations.
The government usually supports the cooperative sector. Cooperatives may be granted financial assistance, tax benefits, or special regulations to help them grow. Cooperatives are encouraged by the government because they advance community welfare and economic development.
| Basis | Private Sector | Cooperative Sector |
| Ownership | Owned by individuals or private firms | Owned collectively by members |
| Objective | Profit maximization | Mutual benefit and welfare of members |
| Decision-Making | Centralized, controlled by owners | Democratic, every member has equal say |
| Profit Distribution | Distributed among owners/shareholders | Shared among members based on participation |
| Government Role | Minimal government interference | Receives government support and regulations |
Private vs Cooperative Sector FAQs
1. What is the major difference between the private and the cooperative sector?
The main difference is that private sector focuses on profit maximization, while cooperative sector focuses on mutual benefit and collective welfare. Is the cooperative sector a part of the private sector?
2. Is the cooperative sector part of the private sector?
No, the cooperative sector is different from the private sector. It operates based on collective ownership and democratic decision-making, whereas the private sector is owned by individuals or companies for profit.
3. Does cooperative society generate profitability?
Yes, it does. This is so far as profit for the purpose is concerned; it is made mainly to cater for members. It is always distributed among all members, and distribution is shared according to the participant’s proportion, not an investment amount.
4. Which is better: private or cooperative sector?
The private sector is known for efficiency and innovation, and the cooperative sector is for social welfare and resource distribution.
5. What are the examples of private vs cooperative sector in India?
Private Sector: Tata Group, Reliance Industries, Infosys. Cooperative Sector: AMUL, IFFCO, Indian Coffee House
