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Free enterprise capitalism, also called a free market, is an economic system or ideology that allows private individuals to form companies, buy, and sell products competitively in an open market with minimal government interference.
For marketing professionals, a free enterprise system is very important because the job of marketing is to gain and keep customers based on their freedom of choice to purchase the highest value product or service that meets their demands.
And that is literally the job of marketing: to match a marketing message to the marketplace.
Now, capitalist systems follow the laissez-faire economic concept, which translates to “leave us alone” in French.
This means that there are no government-enforced regulations, subsidies, and little or no taxes. And this directly equates to freely delivering the best value proposition to the targeted free market segment that the message best fits.
Again, this is the job of a marketing professional.
Under a capitalist system, the economy is controlled by voluntary exchange based on product supply, demand, and pricing mechanisms.
That said, this article outlines some of the best free-market economies and countries in the world.
Interestingly, a truly free market does not exist.
Instead, most countries globally operate a mixed economic system where free market and socialist economies are intertwined.
For instance, while several countries, such as the US, claim to be running a free market, the economy still relies on government involvement to set minimum wage laws, labor laws, control rent and licensing.
Even though most countries operate a mixed system, a few closely align with what can be termed as free-market systems.
Additionally, due to recent events, these three free market systems examples may have changed or are in the process of changing.
Traditionally considered the world’s freest economy, Hong Kong comes closely behind Singapore and remains one of the few countries that still practice strong capitalism. Hong Kong’s small government and nearly free tariffs are the reasons behind the country’s success in capitalism. The country uses a one-country, two-system policy with China, another capitalist country.
This system allows for a free economy in nearly all areas, except for foreign policies and defense. The government spending is currently at 18%, which is slightly higher than Singapore. The tax burden is also low, with 16.5% and 15% being the highest corporation tax and highest income tax, respectively.
Like Singapore, the regulatory systems in Hong Kong are relaxed. However, the government offers a few subsidies for business development, transport, and energy. However, it operates on a zero-tariff system, meaning that imported goods are tariff-free.
New Zealand is another country that ranks well in economic freedom. Just like Singapore and Hong Kong, New Zealand is among the most transparent countries with minimal corruption. However, taxation systems are slightly higher than other high-ranking nations, with top individual tax rates of 33% and corporation tax rates at 28%.
Government expenditure is also slightly higher than the top two nations, as it slightly surpasses 38% of the GDP. However, the government is fiscally responsible, accruing less than 20% total debt burden. New Zealand offers low tariffs averaging at 1.4% and is very open to foreign investments, which promote capitalism.
Australia is the fourth country with economic freedom, joining the list of other countries that support free markets. Like other top-ranking nations, Australia has strict property rights with minimal instances of expropriation. This means that the government cannot use powers to purchase or take land and other resources from private owners.
However, it falls behind other countries when it comes to taxation. The highest personal taxation rates stand at 45%, while corporation tax rates are at 30%. The government spends 30% of the GDP with an overall debt burden of slightly over 40%. Even though taxes are quite high, Australia develops its regulations through extensive consultations.
As mentioned, most countries practice a mixed economic system.
However, The Heritage Foundation report ranked Singapore as the freest economic country in the world.
Singapore currently offers the best example of a free market economy. Singapore has a small government size, amounting to slightly over 17% of the GDP versus the US and the UK, with government sizes at 40% GDP. The average tariff rate in the country is 0.1%, which is very low compared to 1.6% in the US.
Singapore runs a strict and very fair justice system, making it the least corrupt country in the world. Such a small government size in itself is a key sign of a free economy. However, economic freedom in Singapore doesn’t stop here.
Singapore also handles domestic and foreign businesses equally, with nearly 100% of the general market open for investment.
Apart from a fair legal system and minimal government control, many other factors contribute to Singapore’s free-market economy. They include;
The pricing of goods and services in Singapore as a free market economy highly depends on the laws of demand and supply. If the supply of products or resources is less, but the demand is high, the price automatically increases. On the other hand, if the products in the market are in excess and there is low demand, the price decreases.
Similarly, an increase in the cost of goods can reduce demand due to increased expenses, causing product supply to outpace demand. Over time, the price decreases, leading to increased demand and less supply, and the cycle goes on.
Singapore’s economy also has price elasticity and inelasticity. Price elasticity occurs when forces of demand and supply affect the price directly. Simply put, elasticity in price can be equated to a balloon. If a balloon has more air, it becomes elastic. In the market, prices are elastic because the cost of goods can return to the initial price. Such elasticity happens due to the direct impact of demand and supply laws. However, price elasticity affects products that are essential for public consumption.
On the other hand, the cost of non-essential products and services, such as smartphones, is less affected by demand and supply laws. The demand for luxury items that aren’t essential is naturally low. As such, its price is generally less affected by demand, which stirs price inelasticity. That said, price inelasticity is primarily affected by competition.
A free-market economy has minimal or no government involvement, which describes Singapore’s economy in many ways. This means that subsidies, quotas, tariffs, and regulations cannot affect the normal demand and supply of products. However, there is minimal government involvement through basic functions, such as law, policing, and defense. However, such functions shouldn’t significantly affect the wider economy.
In Singapore, the general population has full control over most resources. The government has minimal control over businesses, except for its limited involvement in defense and policing. With this, the market is dictated by profit incentives. Direct government involvement in business can lead to an imbalance in demand and supply. This is because the government won’t close its businesses when it makes losses like private enterprises.
Like other free-market economies, there are very few barriers that control market entry. Strict government regulations can prevent the formation of new businesses, and minimum wages can force small businesses to close. For instance, occupational licensing in the US reduces the migration of businesses across different states and limits the number of businesses in a niche. This significantly reduces competition. However, Singapore enjoys a free economy where domestic and foreign investors equally share the market.
Capitalism highly differs from communism and socialism, where the government has tight control over the economy.
While this economy is highly beneficial to the people or citizens of the country, it has its fair share of drawbacks.
However, in general, most free-market economies perform better than government-controlled economies.