Professional Economic History (Essay Sample)

Free Enterprise Capitalism Student’s Name Institutional Affiliation Course Code and Name Professor’s Name Date Free enterprise capitalism Throughout history, economies have been taking analogous approaches towards economic transformation, all intending to advance the lives of ordinary people. Government formations such as communism and socialism employ diverse methods to better the welfare of the citizens. The snags observed in these formations have always been the same throughout history as they keep coming up in different ways. These civilisations contend with the same issues, including greed, poverty, hefty taxes, ecological degradation, wicked deeds, economic crashes, et cetera. Everything has been politicised, and everyone has relied on regimes for change. If history is to go by, the problems will always be persistent until a difference in the system is undertaken. The free-enterprise system keeps its toehold on strengthening the citizens’ lives, yet, it still struggles just like the other economic concepts. An ardent proponent of the capitalist view, Milton Friedman, designates that history witnessed free enterprise as a better system than the rest. It focuses on improving ordinary people’s lives. This essay draws perspective from the dominance of the capitalistic society, agreeing that it is the best of alternatives that ensure productive activities and the betterment of ordinary people, allows for a dynamic economy, boosts innovation and promotes economic growth. Paradoxes of centrally planned economies Many individuals toyed with the idea of communism in the early twentieth century as it threatened to surpass the USA. The economic boom associated with Late-Tsarist Russia could be linked with tariff-induced state-led industrialisation. Growth was deemed so feeble that labour markets became slack, and profits did not trickle down to the working class. The rising inequality and disputes over land ownership, a critical asset that rapidly inflated in value, underpinned political instability. The state virtually ‘substituted’ the private demand required for industrial growth. After the revolt against the Tsarist regime, the Union of Soviet Socialist Republics was established, gaining remarkable expansion between 1928 and 1940. The movement from farm to the factory was a driving factor of the growth, focusing on full employment. Allen (2005) suggests that the Soviet economy performed well after the 1917 insurgency and the intended change of the state-possessed industry. Such planning culminated in high rates of capital accumulation, swift economic progress, and the rise of per capita consumption during the 1930s. He argues that the Soviet structure could also be applied to underdeveloped countries, making it more meaningful. This argument points to the success of the Soviets’ communism mainly being due to the utilisation of unemployed farm labour in the urban economy, which resulted in an increased output of both consumer and producer goods. Further, Allen claims that the collapse began with the 1970s stagnation due to resource misallocation in excessive military expenditure (Allen, 2005). An advantage associated with the central planning ideology was the essential mobilisation for conducting total war, as observed in Germany’s National Socialists (Nazis) and the Soviet socialists (Communism), making the planning edifice a form of military mobilisation than market socialism. Both these forms of frugality took similar directions and faced similar problems. Both could be characterised as having chaotic bureaucracy as they were both under ‘nested totalitarianism’ and wholly understaffed with the state controlling all parts of the economy. Prompted by isolationism, the Soviet’s socialism offered a short-span form of utopia that, on the surface, looked attractive. Nonetheless, many problems ensued, such as how planners could set export prices, a lengthy complex bureaucracy due to an impasse in offsetting of outputs, overvaluation of exports, et cetera. The regime enjoyed an extended growth period, but it took less than a decade to collapse. The structures that made up this system include the complex bureaucracy, unpredictable prices, localisation of plans, and corruption. As a result, history dictates that centrally planned economies harbour crippling contradictions which, if the 20th-century try-outs are to go by, have been proven to fail. Free enterprise allows for a dynamic economy In a capitalist economy, private actors have leeway to own and control the use of property according to how they like, with the ‘invisible hand’ of pricing apparatus directing supply and demand in markets for the benefit of the social order. The government only plays a role in maintaining peace, justice, and tolerable taxes. In Friedman’s words, capitalism allows for political freedom, ensuring the success of governments’ policies. Capitalism is a time-tested apparatus that primarily encompasses a self-regulating economic arrangement in which the role of government is only to provide particular essential public goods and services at a low cost (Scott, 2006). Defenders of capitalism have often projected that the economy flourishes under the free markets system. The markets are determined by a capitalist ideology that alters social relations through the advanced extension of exchange values into all social domains. A significant difference that distinguishes the free market enterprise from the rest is its ability to survive crises. The dynamic form of capitalism allows for various factors such as increased globalisation, corporate reorganisation, increased production of knowledge, and intensified levels of prosperity, to further accommodate and strengthen the pillars of free markets. During the 20th century, when communism and nationalism were economic growth metrics, much as they had failed elsewhere, the world was entirely shifting towards a free market economy. The growing interest in this dynamic model has been stimulated by various forms of innovations and the growth rate of capitalist regimes. Modern society, unlike Karl Marx, views free enterprise as a broader condition of liberty. Inventions related to the division of labour, economies of scale, wage-labour, and the fine-tuning of artistry between man and the machine during the post-industrial revolution gravitated towards the growth of large multinational enterprises. This system was dominant until the 1980s, an era pigeon-holed by mass manufacture. The economies of scale were perceived as the critical feature in dictating effectiveness. Galbraith (1956) predicted the free market situation in his model of countervailing power, demonstrating that the influence of ‘big businesses’ would be well-adjusted by that of ‘big labour’ and ‘big government’, an instance that brought about stability and consistency unlike the lop-sided patterns observed in socialist regimes. The increase in prosperity riveted the goods and services created by the characteristic multinational enterprises. The free enterprise system goes all-out to obtain equilibrium in GDP, and public debt makes it survive failures, promising that such an economy can only achieve stagnation in the worst possible scenario. Unlike the communist’s centralised nature, capitalism allows for decentralised decision-making, which provides freedom for small and medium enterprises to allow for negligible bureaucracy and liberty to offer competitive prices (Thurik et al., 2013). Under such circumstances, ordinary people shape the competition due to their purchase and choice tendencies, further breeding innovation. Innovativeness boosts Historically, the industrial revolution is characterised by critical inventions, often expressed in individual inventive springs of thoughts in technological advancements combined with the formation of fruitful entrepreneurial undertakings. Hence, historical research often depicts the initial phase of the industrialisation process in Britain as the ‘age of individual inventors’. One perspective can be attributed to the 18th and 19th centuries’ transformation of the structure of British industry; the number of technical inventions that compelled the organisation of production in the factory system (Nuvolari, 2004). Since the free enterprise system allows for creative innovations, the rewards from innovative actions were sufficient to attract significant amounts of economic resources and anthropological skills. The free enterprise system allows ordinary people to be responsible, as the government is not responsible for the poor. Milton Friedman recognises that the free enterprise is the most effective machine for eradicating poverty, as the 19th and early 20th century was a period in which the ordinary man’s life improved. Free enterprise permits responsible businesses to employ their resources and participate in doings intended to grow profit margins as long as they stay within the rules of the game, with the government ensuring openness and free competition without fraudulent dealings. The decentralised nature of such performs well in the longer term as associated with democratic organisational formations that culminate into creating innovative profit that is principally positive rather than zero. Free markets breed innovativeness which tends to raise productivity and profits but causes an upsurge in wages faster than they would. The government’s role is to ensure increasing attention has been paid to education and training to support the wage-growth dynamics and encourage the internationalisation of knowledge transmission (Cantwell & Santangelo, 2000). The various innovations observed through the ages and the modern era are only meant to benefit the ordinary people rather than the wealthy. As a result, Western capitalism’s most significant achievement has been to satisfy the everyday man, availing to the ordinary people’s co...