I was asked the other day about the advantages and disadvantages of the "free enterprise" system. I wrote this reply -
Well, to start with, there is no such thing as “free enterprise” and what is referred to as a “free enterprise economy” is in fact a mixed economy with the Government establishing the rules and largely funding and providing most of the infrastructure for the economy to exist. The “free enterprise” system is associated with capitalism and is basically compared with that other mixed economy system called Socialism. Socialism in turn, is usually, falsely and incorrectly related to that unworkable and proven extreme version called Communism. The advantages of the so called “free enterprise” system can be measured in the degree of restriction it places on initiative and creativeness, and also in the way it approaches “ownership” of ideas and property. “Free enterprise” systems do tend to be more productive in many ways and capitalism is geared to encourage that productive ability as long as it can be done profitably. The fundamental disadvantage of this system is that it has never worked out a rational and effective way to balance production with consumption.
There is absolutely no point in producing anything at all, products or services, unless they can be consumed. For consumption to balance production the consumers must have sufficient purchasing power to cover all the routine production cost, the overheads, taxes and the necessary profit margin.
As the vast majority of consumers are ordinary people, so far, our history has shown that the only generally accepted way to get purchasing power into the hands of the majority of consumers is through having a job and paying them wages. The problem with that system is that the wages component of the total price of any product or service, is normally in the range of 25% to 35%. Hence, the average consumer is always behind the eight ball, and that is why, to live by today’s normal standards of living, they have no choice but to go into a perpetual cycle of debt.
As industry strives to maintain their profitability in an increasingly competitive market they have no choice but to automate and/or offshore their production. That in turn, reduces the overall domestic purchasing power of the consumer market and becomes a self defeating exercise.
Again the Government has to step in and set up safety net programs in order to provide some basic purchasing power, albeit at a very low level, to those people made redundant and expendable through the progress to achieve more with less labour.
Essentially, the “free enterprise” system as it is currently pursued must collapse through the inability to provide the purchasing power to its necessary consumers. Somewhere along the line, a nation’s productivity must be balanced with its consumption capacity. The system must meet the necessary domestic consumption, plus any external consumption its production aims for, but a balance has to be achieved if the system is to survive.
Actually, it is a fundamental truth in life that if we don't make a "profit" out of what ever we set out to do, we will never advance and improve things. In this sense, "profit" is synonymous with "gain" - we have to learn from our endeavours, and even mistakes are part of the learning curve. Simply getting enjoyment from our endeavours is a "profit", and despite all the hard work and toil that might be necessary to achieve a goal, that goal is the "profit" we get when it is achieved.