The Private Enterprise System

      No business operates in a vacuum. All operate within a larger economic system that determines how goods and services are produced, distributed, and consumed in a society. The type of economic system employed in a society also determines patterns of resource use. Some economic systems, such as communism, feature strict controls on business ownership, profits, and resources to accomplish government goals.

     In the United States, businesses function within the private enterprise system, an economic system that rewards firms for their ability to identify and serve the needs and demands of customers. The private enterprise system minimizes government interference in economic activity. Businesses that are adept at satisfying customers gain access to necessary factors of production and earn profits.

     Another name for the private enterprise system is capitalism. Adam Smith, often identified as the father of capitalism, first described the concept in his book The Wealth of Nations, published in 1776. Smith believed that an economy is best regulated by the “invisible hand” of competition, the battle among businesses for consumer acceptance. Smith thought that competition among firms would lead to consumers’ receiving the best possible products and prices because less efficient producers would gradually be driven from the marketplace.

     The “invisible hand” concept is a basic premise of the private enterprise system. In the United States, competition regulates much of economic life. To compete successfully, each firm must find a basis for competitive differentiation, the unique combination of organizational abilities, products, and approaches that sets a company apart from competitors in the minds of customers. Businesses operating in a private enterprise system face a critical task of keeping up with changing marketplace conditions. Firms that fail to adjust to shifts in consumer preferences or ignore the actions of competitors leave themselves open to failure. Google, for instance, continues to challenge Microsoft’s dominance in the market for business word-processing and spreadsheet software. It is expected to enable its Marketing Solutions Web site to sell third-party software to Google Apps customers. In the short time since it began its expansion into enterprise business applications, Google reports adding almost 2 million organizations for Gmail and Google Docs, an aggressive launch to which Microsoft must respond. 

Reference: Boone, L. ve Kurtz, D. (2011). Çağdaş İş, 14, 10.  Asya: John Wiley & Sons