Elements of Free Enterprise

• Free enterprise aims to give individuals the opportunity to make their own economic decisions, free from government restraints. Robert Kirk/Photodisc/Getty Images

  A free-enterprise system, also known as Capitalism, is an economic system that aims to give individuals the freedom to make their own economic decisions. In this system, the means of production are privately owned and operated for profit, decisions are made by those owners rather than the government, and profit is distributed to those invested in these businesses with wages being paid to workers. There are five generally accepted elements to free enterprise: competition, profit, private property, freedom of business, and consumer control.

Competition

• In a free-enterprise system, anyone is free to own a business. Competition for consumer dollars is an integral part of the system, for as one business is profitable it serves to reason that others will enter that business to become just as successful. Because of the pressure that arises through competition, providing quality products and services at fair and reasonable prices becomes essential.

Profit

• A free-enterprise system is achieved when businesses are owned and operated to produce a profit. By keeping costs low and income from sales high, businesses increase their profits. The higher their profits, the more money they are able to pay their workers, who then contribute to, and thus sustain, the economy. This makes what economists call "profit motive" a necessity of the free-enterprise economy.

Private Property

• All individuals in a free-enterprise system have the right to own property. In the United States, this right is protected by the Fifth Amendment to the Bill of Rights. The right to buy and sell property is guaranteed by law and it is the responsibility of that individual to use that property in a safe and reasonable way. Likewise, business owners may not infringe upon these rights, nor can they interfere with the property (the electricity or phone systems, for example) of an individual.

Freedom of Business

• Individuals have the freedom to choose their businesses, if and when they choose to own one, and generally have the freedom to run that business as they see fit. Laws are in place to prevent a business owner from harming or deceiving customers, but it is the right of individuals to own and operate a business, as well as to set the fees for their services or products and the hours during which their business will operate.

Consumer Control

• Especially when considering the American free-enterprise system, consumers have control and thus they will determine which businesses succeed or fail. Essentially, they determine whether or not a free-enterprise system will work in the long run. Consumers are free to spend their money as they see fit, and may cause certain businesses to fail by preferring the product or service of a competing business. This ability to pick and choose products or services thus fuels competition and, presumably, improves the quality of those products and services.