Free enterprise capitalism is not without some drawbacks. Of course they may seem relatively minor when compared to problems with other types of economies, but still, they exist. The growth of free enterprise capitalism is not always smooth and uninterrupted.
Sometimes the growth is relatively fast, and at other times it takes a step back. Most recently, the U. Even with these painful periods, free market capitalist systems still outperform other economic systems like traditional, command, or socialist economies by a wide margin. Another disadvantage of free enterprise capitalism is that the rich seem to get richer while the poor seem to stay poor.
While this will be discussed in greater detail in a later chapter, federal statistics on income support this observation. There may not be many solutions to this issue.
Tax policies and social welfare programs that divert income from the wealthy to the poor are opposed by many Americans who believe them to be socialist in nature. Still, if the gap gets too wide, voters may demand that government do something about it.
Economists know that free enterprise economies work best when there are a large number of players—buyers and sellers—on both sides of the market.
This is not a problem on the buyers side of the market where the number of participants seems to grow as more and more people start to search for and buy products along with millions of others. Your parents may have done most of their shopping for clothing, books, medicine, and other products in a small local market with a few thousand other buyers. You, however, may well join millions of other buyers on the Internet in purchasing the same products nationally.
You have to wonder how intense the competition between these companies really is if they are all part of the same company. When similar firms combine, the result is fewer participants on the supply side of the market. Meanwhile, the participants on the demand side of the market are now focused on a diminished number of suppliers.
This is one of the results of capitalism, and it is one that makes competitive markets less efficient. It is one of the reasons that the government may step in if there appear to be too few firms in an industry—but the government does not often prevent the general tendency of firms to combine and reduce competition. You may not realize it, but corporations have most of the same rights as individuals.
They can sue and be sued, they can enter into contracts, and they can own property, just like you can. In addition to these rights, businesses also have many responsibilities, most of which are due to government regulations that limit the scope of their activities. This makes it illegal for businesses to have a "U.
Other government regulations protect consumers against harm from products on the market, ranging from baby seats and cribs to ignition switches on automobiles. These broad-ranging regulations are required by the Consumer Product Safety Commission, which was established in Requirements like these are unique to free enterprise capitalism because they are not found in other types of economic systems like traditional, command, or socialist economies.
Instead, these policies exist because consumers have the power at the ballot box to force their representatives to enact some regulations on businesses. What are the major economic and social goals of the American free enterprise system? We all have personal goals; even businesses and governments have goals. Living in the United States, we have goals for our free enterprise economic system. What do you think are some of the major economic and social goals most people in the United States share?
Identify one of these goals and write a paragraph discussing whether you agree or disagree with that goal. In the United States, people share many broad economic and social goals. While it might be difficult to find all of our goals listed in any one place, they are repeated many times in statements made by friends, relatives, community leaders, and elected officials.
We can categorize those statements into seven major economic and social goals. Americans traditionally place a high value on the freedom to make their own economic decisions. They like to choose their own occupations, employers, and uses for their money. Business owners like the freedom to choose when, where, and what they produce. This belief in economic freedom, like the belief in political freedom, is one of the cornerstones of American society.
Most people recognize that resources are scarce and that factors of production must be used wisely. If resources are wasted, fewer goods and services can be produced, fewer wants and needs can be satisfied, and fewer resources can be left for future generations. Because economic decision making needs to be efficient, economic efficiency is also one of our major goals. Americans have a strong tradition of justice, impartiality, and fairness.
Many people, for example, believe in equal pay for equal work. As a result, it is illegal to discriminate on the basis of age, sex, race, religion, or disability in employment. While not everyone supports it, the minimum wage does put a floor on the amount of income that some workers earn. In the interest of fairness, most people believe that advertisers should not be allowed to make false claims about their products.
As a result, many states have set up unemployment compensation programs to help workers who lose their jobs through no fault of their own. Today, more than 90 percent of all American workers participate in the Social Security system. Most retirees and some widows, people with disabilities, and others are also eligible for benefits. Medicare , a federal health insurance program for senior citizens, regardless of income, is another program that provides economic security to elderly Americans.
When people work, they earn income by producing goods and services for others. Without jobs, people cannot support themselves or their families, nor can they produce output for others.
As a result, most people want their economic system to provide as many jobs as possible. The goal of full employment even became law when Congress passed the Employment Act of in an effort to avoid the widespread joblessness that the country faced in the Great Depression.
Another goal is to have stable prices. High rates of inflation can even discourage business activity. During times of high inflation, interest rates on loans tend to increase along with the price of goods and services.
If interest rates get too high, they can discourage both borrowing and spending by businesses. Price stability adds a degree of certainty to the future for businesses and consumers alike. A major goal of most Americans is economic growth. Specifically, government has two roles: rule maker and umpire.
In its role as rule maker, government makes and enforces laws governing the conditions under which voluntary transactions are made. These laws are designed to protect the rights to private property and individual freedom and to preserve and promote competition. As an umpire, government acts to settle disputes resulting from conflicting interpretations of the rules. Beyond this, government has no other major economic responsibilities. Indeed, in a pure free enterprise system the governmental role is clearly and specifically limited to keeping the system free and competitive.