What is Free Enterprise?
Free enterprise is a system of commerce where private individuals can form companies and buy and sell competitively in the market without government interference.
Free enterprise, or the free market, is an economic system where private individuals can form companies and buy and sell competitively in the market with a minimum of government interference. A free enterprise system follows the laissez-faire concept of economics, the idea that people don’t need the government to regulate or correct the market. People are free to conduct business as they see fit based on the needs they see around them. A government does not tell anyone what kind of business they can start, what they must sell, or how to run the company in a free enterprise system. While many economic systems, like in the United States, are based on free enterprise, government regulations usually provide some checks and balances instead of allowing a pure laissez-faire style of capitalism.
The United States, generally speaking, is a good example of a free-market economy. Individuals are allowed to start businesses, buy and sell goods at prices set by the market, and sell their own labor with relatively few regulations or barriers to economic activity. This is in contrast to heavily regulated or state-controlled economies, such as Cuba’s or North Korea’s Communist governments, where essentially all economic activity is controlled by the state and markets do not operate freely. Most economies fall somewhere between a totally free market and total state control.
Free enterprise is like children playing at recess…
They can play their own games by their own rules. The teacher (the government) will only step in if someone’s in danger of serious harm.
Personal freedom is the cornerstone of a free enterprise system. Being able to participate in economic activity according to personal freedom is vital. Private property, economic freedom, economic incentives, competitive markets, and the limited role of government are the characteristics of a free enterprise system.
Private property: Private property means that individuals can own and make decisions about the use or sale of land, personal property, and other assets. Individuals control their property rather than using or renting property belonging to the government.
Economic freedom: Economic freedom is the freedom to pursue financial gains. This freedom includes the right to create a business, seek employment at a specific company, quit a job, invest as desired, and any other economic activity.
Economic incentives: Economic incentives refer to being able to make individual financial decisions. People can accept employment, quit a job, move to work in another state, choose to learn a higher-paying skill, decide what to buy, and more.
Competitive markets: Every person has different personal preferences and goals. Some want a simple lifestyle, while others prefer luxury choices. Some like chocolate ice cream and others like strawberry. A competitive market provides alternatives to consumers rather than many copies of the same product. Businesses compete against each other to offer products and services consumers want in a free enterprise system, rather than the government dictating what can and cannot be sold.
Limited role of government: While a free enterprise system should be free of unnecessary government interference, it doesn’t mean it is free of government. The government still has a role in enforcing people’s individual rights to be secure in their person and property. The government also enforces rules of fair play in the economy, enforcing contracts and making sure that consumers are not defrauded. In short, the government acts like a referee.
A free enterprise economy works by people participating in economic activities for personal gain. Someone sees a need, creates a business to fill that need, others accept jobs to work with the company, and others buy the product.
Each stage relies on someone being motivated to act and reap the benefits of their efforts. Competition to sell the most product, get paid the highest wage and improve a personal standard of living drives the activities of each person participating in free enterprise.
Individual freedom is only checked in case of disagreements — where the government’s role should be that of an arbiter, settling contract and property disputes to prevent “cheating” by one party to unfairly gain an advantage over another.
A free enterprise system, in theory, allows individuals of all economic classes to make their best economic choices without interference. A free enterprise system should not penalize the poor or help the rich.
Whether or not a free market system is ideal is an important dispute in politics and economics. Generally speaking, free-market economies see much higher rates of economic growth — with greater prosperity improving the standard of living for rich and poor alike.
However, many feel that free markets lead to the exploitation of the poor by the rich. If a free enterprise system is not accompanied by strong consumer protections and a generous social safety net in terms of anti-poverty programs, it is often perceived as unfair.
Free enterprise and free markets are often used interchangeably in everyday discussion.
However, there are differences.
Put simply: Free enterprise is the act of conducting business in a free market, while free markets are the arena in which free enterprise takes place.
Free enterprise is more or less the opposite of a command economy. A command economy is wholly controlled and owned by the government, like in Communist and totalitarian countries such as Cuba and North Korea, while free enterprise relies on the private sector (privately owned businesses).
In theory, government control in a command economy is aimed at providing the necessities of living to citizens. The reason should not be profit gained for the government or government officials. However, in practice, the citizens usually get the short end of the stick, and government officials become the economical elite.
The United States has a mostly free enterprise system. The ideal of the U.S. system is for the government to mostly act as a referee, with rules (laws) designed to prevent abuses. In reality, the government does reach further due to politics, social pressures, and lobbying groups. The American system technically could be considered a mixed enterprise economy. However, the U.S. is considered to be the primary example of a free enterprise system.
Much like a free-market economy, a free enterprise system in its purest theoretical form is hard to find. However, many countries have some version of a free enterprise system. The U.S. is considered the best example of a free enterprise system, but other countries with some version of a free enterprise system include the UK, Singapore, Switzerland, Australia, and Canada. It bears noting that a democratic country does not automatically have a free enterprise system. Many democratic countries have considerable government regulation of free enterprise.
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