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Free enterprise is an economic term describing the economic activity that is possible where few restrictions are placed on starting a new business, usually within a free market under capitalism.
It has been defined as "[a]n economic system in which private business operates in competition and largely free of state control".[1]
The phrase is found in the anonymous 1805 work, A Sketch of the Present State of France, with the author asserting that "the levity, vanity, instability, and folly of the French character, are alone sufficient to prevent them from ever becoming a commercial people; but their present fetters render the free enterprise of trade impossible".[2]
American neoconservative journalist Irving Kristol wrote:
"Capitalism" is a term invented by socialists, but it can be a neutral term, almost a technical term. There happened to be no other term around to describe that economic system, but various conservatively inclined, procapitalist people – procapitalist ideologues, I would say – decided they did not like the word “capitalism.” They substituted "free enterprise" as part of a neo-Darwinian theory of the economy. "Free enterprise" emerged out of a conception of the economy and the society which said: "We'll all engage in competition, a war of all against all, and some of us will survive; others will do worse and won't survive. That's tough and that's all there is to it. Of course, the majority will not survive." The majority did not greet this intelligence with glad tidings. The majority, on the whole, thought that this was not a very good way to live, that human society should not be constituted under the law of the jungle. So “free enterprise” and its connotations only continued to give capitalism a bad name.[3]
The concept that underlies capitalism, free enterprise is the economic system based on private rather than public ownership of the means of production. Investment of capital and employment of labor generate personal profit, which benefits society. According to free enterprise theorists and advocates, economies work best when left free to respond to fluctuations in supply and demand, and government intervention should be limited if not eliminated. The theory is primarily the work of Adam Smith, who wrote The Wealth of Nations in 1776 as a reaction to the then-current philosophy of mercantilism. The profit motive that drives free enterprise has been present in virtually all economies, but its fullest expression came in the 18th century when the Industrial Revolution shifted power to merchants, bankers, and industrialists (sometimes known as the bourgeoisie or middle class) from the traditional landowning elites.[4]
The institution of private property alone is not free enterprise, for although free enterprise is necessarily private, in some degree, private enterprise is not necessarily free. Government-supported cartels and monopolies may be privately owned and still suppress all competition while themselves subject to detailed regulation. Competition alone is not free enterprise, for economic conflict without rules is simply warfare in a state of anarchy. Regulation which leaves no room for individual choice and judgment is sheer despotism. Free enterprise depends upon the maintenance of a balance of all three elements. So the system we know as free enterprise is a system containing something of the elements of all other systems.[5]
In free enterprise countries, such as the United States, the private sector is wider, and the state places fewer constraints on firms. In countries with more government authority, such as China, the public sector makes up most of the economy.[6]
References
edit- ^ David Bach, 1001 Financial Words You Need to Know (2003), p. 75.
- ^ A Sketch of the Present State of France (1805), p. 116.
- ^ Irving Kristol, "A Capitalist Conception of Justice", in Paul Schumaker, ed., The Political Theory Reader (2010), p. 328.
- ^ Lawrence M. Salinger, Encyclopedia of White-Collar & Corporate Crime - Volume 1 (2005), p. 340.
- ^ Lee Loevinger, The Law of Free Enterprise: How to Recognize and Maintain the American Economic System (1949), p. 296.
- ^ Rouse, Margaret (August 2013). "What is private sector? - Definition from WhatIs.com". Tech Target. Retrieved July 16, 2017.
External links
edit- Free Enterprise: The Economics of Cooperation Looks at how communication, coordination and cooperation interact to make free markets work
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- This open draft remains in progress as of August 8, 2024.