Capitalism vs Free Enterprise

July 28, 2010

According to U.S. Chamber of Commerce, 65% of small business owners had a very positive impression of the term “Free Enterprise”, while 45% viewed the term “Capitalism” in the same light. In a Gallup poll conducted in February, 86% of individuals had a positive image of the term “Free Enterprise”,, while 61% had a positive image of the term “Capitalism”.

Webster defines Free Enterprise as:
“An economic and political doctrine holding that a capitalist economy can regulate itself in a freely competitive market through the relationship of supply and demand with a minimum of governmental intervention and regulation.”

While they define Capitalism as:
“An economic system based on a free market, open competition, profit motive and private ownership of the means of production. Capitalism encourages private investment and business, compared to a government-controlled economy. Investors in these private companies (i.e. shareholders) also own the firms and are known as capitalists.”

Pretty interchangeable terms.

When you google Free Enterprise, the first entry is the definition of Capitalism found on Wikipedia. The second is Free Enterprise as defined by Wikipedia.

It appears that Capitalism has become a “10 letter” word. Steve Lombardo who’s consulting group conducted the poll of small business for the U.S. Chamber of Commerce claims that it’s because “Americans love things that are “free,” whether it’s free enterprise or free ice cream.” Still others have theories that vary from capitalism’s root “Capital” and it’s association to banks and the financial industry, (a popular group these days) has a subconscious negative connotation. Also, people associate Free Enterprise with “Freedom”, and we in the U.S. are all about freedom!

In Walter Russell Mead’s book God and Gold, America and the Making of the Modern World he discusses, among many topics, how Americans and their capitalistic focus make them cold, money hungry people in the eyes of almost everyone else in the world.

When considering the definitions above, there is an underlying concept of free and competitive markets that regulate themselves with little or no government intervention. In The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals, Frank Partnoy tells a story, that reads like recent newspaper and magazine articles, of how Ivar Kreuger’s creative “financial strategies” not only lead to the market collapse of the 1930 but also the government stepping in with regulations. Some 80 years later history is repeating itself.

There are two things, at least, that are clear. We can not legislate or regulate away greed and capitalism run a muck doesn’t work. So what are we to do? Recently there have been a number of news reports and articles on the 2% highest income earners in America and the “bottom” 95% of income earners in America. I call this 95% Main Streeters. Both groups represent almost equal total incomes as a group and pay almost equal percentages of income tax as a group. As we look at both the 1930s and recent times in the economy and financial markets you’ve got to ask yourself “Why does it appear that the 2% are in control?”

The answers, to me, seem quite simple they exert their control and Main Streeters don’t. Given that Main Streets represent a much larger group of voters, buyers and business people (small businesses drive the economy and employment) means that they have the potential power to both pull the U.S. out of its current economic problems, and ensure that we stay out of economic trouble going forward.

What do you think?

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