Business

Free Enterprise vs. Free Markets: A Crucial Understanding

If the preservation of capitalism is important to you, then you need to distinguish between free enterprise and free markets. If you don’t, free markets will severely tarnish the image of free enterprise, making the implementation of a new, more socially aware version of capitalism unlikely.

Free Enterprise
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Is there a distinction between free enterprise and free markets, and if so, does it matter? Most people use them as synonyms, but there is a distinction, and it’s important.

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The two have been deliberately conflated as it helps sell an unpalatable idea by linking it to the other, which is highly desirable. The conflation is similar to that which has been done in conflating the terms standard-of-living, and quality-of-life. These two macroeconomic measures have been conflated to hide the fact that although standard-of-living is increasing, quality-of-life is plummeting. Quality-of-life is by far the more important indicator, and if the majority were aware of this, demands for change would escalate. So, the masters of our economy, the wealthy conflate the terms, so when somebody raises the issue, lines of differentiation are confused - they can refute the claims pointing to rising standard-of-living to back their claims.

Here is an example of what I mean. In January 2015 John Sentamu, Archbishop of York and Justin Welby, Archbishop of Canterbury lashed out at the failings of our economy. They pointed out that while we had become rampant consumers, the economy was failing to address social and environmental issues. An economist called Ryan Bourne published an article in the Telegraph on 16th January 2015 to defend our neoliberal economy. Mr Bourne pointed out to the two Archbishops that our standard-of-living has improved dramatically over the past four decades, so they should not complain. According to him, the economy is serving the majority well. He explained how most people now lived a comfortable life, which they never had before. Unfortunately for Mr Bourne, he’s a victim of the misinformation spread by vested interests, or otherwise, he’s playing his part in trying to spread the confusion further. Both Archbishops were trying to point out that rampant consumerism is part of our failing economic system, which is directly responsible for the lowering of the quality-of-life for the majority. Mr Bourne was highlighting our improved standard-of-living, which is something entirely different to that of quality-of-life. However, as vested interests have conflated the two, you can see why poor Mr Bourne is himself confused. They conflate the terms standard-of-living and quality-of-life to hide the fact that the most critical measure of all (quality-of-life) is in rapid decline.

For similar, but not identical reasons, vested interests conflate free enterprise with free markets to help promote their objectives. Neoliberalism is about promoting free markets. The wealthy want the concept of free markets promoted because that means less government intervention, which represents higher profits. It also means smaller governments as they don’t need the staff to enforce regulations. Smaller governments means lower taxes, which represents greater wealth for the individual, or legal entity. The wealthy benefit from free markets, of this there is little doubt. However, this is a  myopic, short-term perspective to hold. The problem with this approach is that it ignores the benefits of cooperation and association. By banding together and building a strong society, we all benefit. All businesses benefit through investment in common assets, such as infrastructure, institutions and a happy stable, well-off society. All those who benefit from this don’t want to contribute to its upkeep and growth, they want to retain as much wealth for themselves. If we do that, in the end, we will lose the infrastructure, institutions and a happy, stable society, and with it our own wealth. It is such an incredibly short-sighted approach that within a few generations, it will lead to us becoming a basket-case. Free markets have a negative, one-sided overtone.

Free enterprise, on the other hand, has a positive overtone. By enterprise, I mean the practice of providing value to others by offering goods or services they need or want.  Free enterprise means anyone can start a business without the permission of the government and to compete against other businesses without interference from the government, as long as they do so within the regulatory, moral, ethical and cultural bounds of the country. Of course, free enterprise also requires the Rule of Law and the enforcement of contracts, which is a legitimate and necessary role of government. However, in some countries, an individual cannot start a new business without permission from the government, and the ability to compete against existing businesses is prohibited by a system of cronyism and legal prohibitions on competition. Free enterprise provides individuals with the opportunity to use their skills, knowledge, creativity and hard work to do something beneficial. Something which benefits them and others. For this, society must reward them with profit, and allow them to enjoy the fruits of their labour, but not at the expense of society or the environment. What’s not to like about the concept of free enterprise?

Because free enterprise allows businesses to offer their goods and services in the marketplace freely, vested interests have seized on the opportunity to conflate free markets with free enterprise, using the two as synonyms. In this way, they have taken a beneficial concept to promote a concept with unfavourable outcomes. If you challenge the merits of free markets, they respond by asking “why don’t you support free enterprise?” And so, they confuse and spread their poison. Just by conflating a few simple terms, they are able to mislead the majority - frightening.

Copyright © 2019 Adrian Mark Dore

adrian.dore@growingvalue.net