Ex. 5. Make a short summary of the text. Unit 14 The Private Enterprise System
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.