Free Enterprise System

The term enterprise can mean a business or the setting up and running of a business. In a free enterprise system, anyone can set up a business on his own without great interference from government. Free enterprise exists only under a capitalist system of economics. There is no totally free enterprise system, one where the government cannot interfere at all. All businesses must abide by some regulations.

Most economic systems operate knowing that the government can have some say in economic or business transactions. Those systems which allow the owners of the businesses to gain profit from their work will be wealthier than those who do not give any return to the laborers.

Many different types of a free enterprise system exist in the world. The United States and Singapore have less interference from the government than other economies. The European model of free enterprise includes much stricter regulations on the businesses. The governments have more right to interfere.

Over 200 years ago, Adam Smith wrote a book called the Wealth of Nations. He set down the principles of a free enterprise system. His principles have been shown to be correct. Economies which are run under a strong hand of the government fail as well as those who function under the 'Invisible hand of the markets', according to Smith. This means that if the government allows business to operate more on its own, greater profit will result. However, a complete lack of government regulation can result in disaster.

The United States free enterprise system consists of five parts. First, anyone can start a business of any kind, sell whatever products he wants and decide what prices to charge for products or services. This is called private enterprise. Laws will prevent a person from cheating or harming others, of course, but, in general, a person can run his business as he wants.

Second, in a free enterprise system, each person can buy and sell private property as he wants. Private property is land, a car, a home or a building owned by a family, person or group. Laws do require that a person uses this private property in a safe way.

Third, all businesses exist to earn money. After the sale of goods or services and payment of all expenses and salaries, the money left over is called profit. Every business wants to make the profit as high as possible. The desire to have a business achieve the highest profit possible is called the profit motive.

A fourth part of the free enterprise system is competition. A person sells a product or service, but others are free to sell the same products or service. The business which can sell a good quality product at the lowest price will make more profit. More people will buy the product. Competition helps to keep prices down also. Businesses are always trying to find ways to increase their profits over those of their rival businesses. More than one business is competing for the same customers.

Fifth, it is the consumer or the buyer who really determines whether businesses succeed or fail in the United States free enterprise economy. Buyers have the power to spend their money on one product and not another. How buyers or consumers spend their money causes businesses to choose what products to continue selling, changes to make in the products or what products to stop selling.