P A R T II

The Private Enterprise System

Unit 13

What is Business?

Key Words and Phrases

profit-seeking activities	діяльність, що приносить прибуток
tangible goods	матеріальні (реальні) товари
computer chips	комп`ютерні чіпи
expenses (expenditures)	витрати
competitors	конкуренти
competitive success	успіх в конкуренції
contemporary circumstances	сучасні обставини
to deal with	мати справу з . .

What do we think of when we hear the word "business"? Some of us think of our jobs, others of the merchants they deal with as consumers, and still others of the millions of firms that make up the world’s economy. This broad, all-inclusive term can be applied to many kinds of enterprise. Business provides the bulk of our employment as well as the products we enjoy.

Business consists of all profit-seeking activities and enterprises that provide goods and services necessary to an economic system. Some businesses produce tangible goods, such as automobiles, breakfast cereals, and computers chips. Others provide services, such as insurance, car rentals, and lodging. German firm Munich Re has even built a billion dollar business from serving the service industry. Its business is reinsurance: insuring insurance companies so they do not go broke from backing major catastrophes. Business is the economic pulse of a nation, the means through which society’s standard of living improves. Profits are a primary mechanism for accomplishing these goals. Accountants and business people define profits as the difference between a company’s revenues (receipts) and expenses (expenditures). Profits are the financial rewards by successful people who take the risk involved in business.

Just as important as profits are the social and ethical responsibilities that successful businesses must meet. This means companies must be responsible in their dealing with employees, consumers, suppliers, competitors, government, and the general public if they are to succeed in the long run. Robert D. Haas, chairman and chief executive officer of Levi Strauss & Company, says, "A company's values – what it stands for, what its people believe in – are crucial to its competitive success. Indeed, values drive the business." Haas feels so strongly about the social responsibilities of business that he drafted an Aspirations Statement for Levi Strauss that emphasizes the importance of "affirming the best of our company’s traditions, closing gaps that may exist between principles and updating some of our values to reflect contemporary circumstances."

Exercises on the text:

Ex. 1. Read and translate the text.

Ex. 2. Answer the following questions:

1. What is business?

2. What is profit?

3. What is the role of profit in business?

4. What can you say about the social and ethical responsibilities that successful business must meet?

Ex. 3. Give English equivalents for the following words and word combinations. Try to memorize them:

сучасні обставини; мати справу з виробництвом; діяльність, що приносить прибуток; продукція, котра нам подобається; страхова компанія; компанії повинні відповідати за свої справи …; кращі традиції нашої компанії.

Ex. 4. Fill in the blanks with noun, verb or adjective forms. Use your dictionary if necessary.

	Noun	Verb	Adjective
	execution	execute	executive
	—	—	competitive
	production	—	—
	—	satisfy	—
	—	—	valuable
	reflection	—	—
	—	apply	—
	success	—	—

Ex. 5. Make a short summary of the text.

UNIT 14

The Private Enterprise System

Key Words and Phrases

private enterprise system	система приватного підприємства
consumer acceptance	згода споживача
to satisfy consumer demands	задовольнити потреби споживача
product offerings	пропозиції щодо продукції за визначеною ціною
sophisticated life-style	витончений, вишуканий стиль життя
entrepreneur	підприємець, власник підприємства
intangible properties	нематеріальна власність
negotiate wages	обговорювати умови заробітної плати
to quit work	звільнитися з роботи
cutthroat competition	конкуренція не на життя, а на смерть

Most U.S. business, large and small, belong to what is called the private enterprise system, in which success is determined by how well they match and counter the offerings of competitors. Competition is the battle among businesses for consumer acceptance. Sales and profits are the yardsticks by which such acceptance is measured.

There have been many firms that were once successful but failed to continue satisfying consumer demands. Competition assures that, over the long run, companies that satisfy consumer demands will be successful and those that do not will be replaced.

In the private enterprise system, firms must continually adjust their strategies, product offerings, service standards, and operating procedures; otherwise competitors may gain larger shares of the industry’s sales and profits. Consider the following cases. At one time, Montgomery Ward was a major force in retailing, but Sears beat Montgomery Ward to take over a major share of the market. Lately Sears has been battling Wal–Mart, which has become the nation’s largest retailer. Ford once led all automakers in production. Today Ford ranks second to General Motors (GM) among domestic producers in U.S. sales. Until recently Ford still had higher sales in Europe than GM, but GM now sells more vehicles in the European market than any other American company. GM cannot afford to celebrate too hard, however, because the private enterprise environment is dynamic and ever-changing. GM’s market share in the U.S. has fallen by 10 percent in the last ten years — as sales of imported cars rise.

Competition is the mechanism that guarantees the private enterprise system will continue to offer the goods and services that provide high living standards and sophisticated life-styles. Few business organizations escape the influence of competition. Even not-for-profit organizations, like the American Cancer Society, must compete for contributions with other not-for-profit groups such as the American Heart Association, the local symphony, or your own college. Similarly, the U.S. Postal Service competes with private employers to hire workers.

Role of the Entrepreneur

The entrepreneur is a risk taker in the private enterprise system: someone who seeks a profitable opportunity and then devises a plan and forms an organization to achieve that goal. Some entrepreneurs set up new companies and ventures; others revitalize already established firms. The entrepreneurial spirit lies at the heart of the American economic system. If no one took risks, there would be no successful businesses, and the private enterprise system could not exist.

How the Private Enterprise System Works

The private enterprise system, or capitalism, is founded on the principle that competition among firms best serves the needs of society. Adam Smith, often called the father of capitalism, first described this process in his book Wealth of Nations, published in 1776. Smith said an economy is best regulated by the invisible hand of competition. He believed that competition among companies received the best possible products and prices because the less efficient producers would gradually be driven from the market place.

The "invisible hand" concept is a basic premise of the private enterprise system. In the United States, competition regulates our economic life. In fact, we feel competition is so important that we have passed laws to strengthen its role. These laws, called antitrust laws, preserve the advantages of competition by prohibiting attempts to monopolize markets. There are many other government regulations that also influence the way firms operate.

Basic Rights of the Private Enterprise System

Certain rights critical to the operation of capitalism are available to citizens living in a private enterprise economy. As shown in Figure 1.1. these include the rights to private property, profits, freedom of choice, and competition.

Figure 1.1 Basic Rights of the Private Enterprise System

Private Property. The private enterprise system guarantees people the right to own, use, buy, sell, and bequeath most forms of property, including land, buildings, machinery, equipment, inventions, and various intangible properties. The right to private property is the most basic freedom under the private enterprise system. People living under private enterprise system believe they should have the right to any property they buy and to all benefits resulting from such ownership.

Profits. The private enterprise system also guarantees business owners the right to all profits (after taxes) earned by the business. There is no guarantee the business will earn a profit, but if it does, the owner is entitled to it legally and ethically.

Freedom of Choice. Under a private enterprise system, citizens are free to choose their employment, purchases, and investments. This means people can go into or out of business with a minimum of government interference. They can change jobs, negotiate wages, join labor unions, and quit work if they so desire. Consumers can choose among different breads, furniture, television programs, magazines, and other goods and services.

Americans are so accustomed to this freedom of choice that we sometimes forget its importance. The private enterprise economy maximizes human welfare and happiness by providing alternatives. Other economic systems sometimes limit freedom of choice in order to accomplish government goals, such as increasing industrial production.

Competition. The private enterprise system also allows the public to set rules for competitive activity. This is why the U.S. government has passed laws to prohibit "cutthroat" competition — excessively competitive practices designed to eliminate competitors. It has also established ground rules that outlaw price discrimination, fraud in financial markets, and deceptive practices in advertising and packaging.