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What is a Free Enterprise System?

2016-12-02T10:38:11+00:00

The term 'Free Enterprise System' is included in the Economics edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

Free enterprise systems are those which have limited government interference in the overall economy. Governments do not place many restrictions on the economic activity and commercial abilities of their citizens in this system. Ownership and business activities are not heavily regulated by the government. Other names for this system are capitalism or free market economies.

In such economic systems, individuals can spend their money however they would like. A number of companies compete for business in most industries. This creates the effects of higher quality products and better prices. Individuals can engage in any work or job that they like under this system.

The history of the free enterprise movement and system dates back to the 18th century. At this time people in countries around the world had to obtain governmental approval in order to start up a business. The philosophy of free market economies argued for limiting restrictions on business ownership.

The idea was that individuals should be permitted to trade with anyone they wished from any nation. Proponents of the system wanted to run their business as they saw fit. Adam Smith wrote about this system of capitalism and the invisible hand that guides free markets at this time in his timeless classic The Wealth of Nations.

The French came up with a similar concept Laissez-faire. This meant that government should keep its hands off individual business. Private party transactions were supposed to be left free from government tariffs, regulations, privileges, and subsidies.

In the early 20th century Communism developed as an opposing system to free enterprise. It argued for state owned control of industry and businesses. Workers were encouraged to labor for the good of the collective group instead of for their own benefit. Large sections of the world adapted this form of economic domination in Eastern Europe, Asia, and Russia particularly. In time this system became discredited. In the 1990s it collapsed in the former Soviet Union and Eastern Europe. It has all but disappeared except for in China.

A number of countries of the world have adapted many of the causes of free enterprise into their economies. This system of free enterprise became a major part of the U.S. and British economies’ strength. There are free market representatives who continue to insist that the U.S. and other Western countries need less restriction on their economies.

Still other countries of the world participate in a third economic system. This is known as socialism. Socialist governments attempt to manage their capitalist economies. One of their goals is to protect workers’ rights and benefits. They often place restrictions on free trade with other countries and erect barriers to competition. Larger industries are nurtured and are often part owned by the government. Smaller businesses are not as heavily regulated. They enjoy more of the benefits of free market economies. France is an example of this type of economy.

Free enterprise systems are characterized by a number of different traits. The spending of consumers determines what goods and services companies will supply. Markets permit individuals to obtain property, buildings, and real estate with few limitations.

Owners of businesses enjoy several advantages with this system as well. They are allowed to make their own prices and decide how much profit they will pursue. They can also choose their own material suppliers and with whom they will conduct their business. The government also will not limit them to the kinds of business which they are allowed to pursue.

The term 'Free Enterprise System' is included in the Economics edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.