Free Enterprise

Reviewed by Annapoorna | Updated on Jul 26, 2021


What is Free Enterprise?

A free enterprise is a form of economy in which the market dictates the goods, prices, and services, and not the government. It is neither communism nor capitalism.

Supply of free items are not constrained, and every business corporation is an organisation. The free enterprise, therefore, applies to an economy in which businesses are open from government regulation. Because of supply and demand, costs in a free enterprise go up and down. If the demand is high, the prices will go up. If the demand is low, the prices go down.

Free Enterprise is an economy that mainly relies on market forces to allocate goods and resources and set prices.

It covers business activities that are not regulated by the government but defined by a set of laws, such as property rights, contracts and competitive bidding. Free markets are characterised in theory and practice by private property rights, cooperative contracts, and competitive market place bidding for goods and services.

Origin of Free Enterprise

The first recorded theoretical reference to free enterprise structures may have originated in China during the fourth or fifth century B.C. Laozi aka Lao-tzu argued that by intervening with individuals, governments impeded development and happiness.

Legal codes which resembled free enterprise systems were uncommon until much later. In between the16th and the 18th centuries, England was the original home of modern free markets. This development coincided with and also contributed to the first industrial revolution and the rise of modern capitalism.

Example for Free Enterprise

A homemaker selling mango pickle in her neighbourhood could be an example of free enterprise. She sells forty bottles of pickles at a standard rate of Rs.160 per 500 grams. A self-help group of women in the same neighbourhood are into the same business. The prices are competitive as well.

A certain degree of intervention by the government is always needed to regulate the market so that the sellers do not indulge in using substandard ingredients for making pickles or adding the harmful MSG while processing to enhance the taste. The Food Safety and Standards Authority of India (FSSAI) board is the overseeing authority for food safety and regulation in India.

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