Any market that is driven by the forces of demand and supply with little or no government interference is one of the free enterprise examples. The free enterprise system is an economic system whereby the rules and regulations of the economy are set by itself. This means that the economy is largely controlled by the private sector without interference from the government. As a result of this, individuals can buy and sell comparatively within the free enterprise system.
The market is self-regulating, meaning that the government does not set the standards upon which the market operates. Instead, the various players in the market set the rules based on the market forces of demand and supply. Furthermore, individuals are free to choose the kind of occupation they want to engage in, can own property, are free to start their own businesses, and can make purchases from whomever they want. Let us have a look at some free enterprise examples based on countries and businesses.
Examples of countries that practice free enterprise system
- New Zealand
The 2022 Index of economic freedom listed these countries as the top ten in regards to being classified as countries that practice the free enterprise system. The ranking was based on twelve (12) qualitative and quantitative factors which have been grouped into four broad pillars of economic freedom as follows:
- Government size comprises government spending, tax burden, and fiscal health.
- Open markets comprise trade, investment, and financial freedoms.
- Regulatory efficiency comprises business, labor, and monetary freedoms.
- Rule of law which comprises property rights, government integrity, and judicial effectiveness.
The United States is ranked 25th on the index and has an overall score of 72.7%. This makes it a country that is mostly free. This means that although the United States is an example of a free enterprise country, its degree of freedom is low when compared to countries such as the Netherlands which is among the top ten countries that have a free enterprise system at play in their economy.
Example of a free enterprise country: Singapore
Singapore is a country in the Asia-Pacific region and it practices a free enterprise system. This has led to the steady growth of its economy between 2017 to 2021, with an exception in 2020 when its economy contracted by 5.4% due to the impact of the Covid-19 pandemic.
The free market has thrived due to the well-secured property rights, transparent legal framework, open and corruption-free business environment, high level of government accountability and transparency, and prudent monetary policies. These factors have further encouraged innovation and entrepreneurship.
Due to its free trade economy, Singapore is one of the most prosperous countries in the world and has a very low unemployment rate coupled with a regulatory environment that is business-friendly. Thus, the country is a major manufacturer of chemicals and electronics. It also operates one of the world’s largest ports and exports computers, refined petroleum, and integrated circuits to several countries. Property rights are recognized and enforced effectively. The judicial process is also very effective and reliable in business-related matters.
Singapore’s reliable infrastructure, business-friendly legal and tax structure (the top individual income tax rate is 22% while the top corporate tax rate is 17%. Other taxes include taxes for goods and services), and dependable regulatory processes serve as a bedrock for the continuous existence of the free enterprise system in the country. Furthermore, both local and foreign companies are treated equally under the law.
Example of a free enterprise country: Switzerland
Switzerland is a country in the Europe region that practices free trade. Between 2017 to 2012, the economy veered through a trajectory of growth, decline, and growth. 2017 and 2018 were years of growth for the economy, the growth slowed in 2019, declined by 3% to a negative in 2020 due to the effects of the pandemic, and resumed back to growth in 2021 when economic activities picked up speed. The country has one of the world’s highest Gross Domestic Products (GDP) per capita and its labor force is highly skilled. Major economic activities include pharmaceuticals, financial services, electronics, precision manufacturing, chemicals and metals.
The bane of the free enterprise existence in the country can be attributed to its independent and fair judicial system, protection of property rights, respect for and enforcement of intellectual property rights, low corruption rate, efficient application of commercial and bankruptcy laws, and a low federal tax rate (the top tax rate for individuals and corporate entities are 11.5% and 8.5% respectively).
Furthermore, the subsidization of the agricultural sector by the government and the restrictions imposed on import has boosted the country’s agricultural sector and supported domestic production. It further has efficient capital markets, transparent regulations, and a well-maintained transportation system.
Switzerland’s financial sector offers a wide range of financing instruments that is buttressed by a sound regulatory regime. Its transparent, consistent and modern investment framework has made it easier for foreign investments to boom. The banking sector is also well capitalized, thus, access to credit is less cumbersome compared to countries that do not practice the free enterprise system.
Ireland as an example of a free enterprise country
Ireland is a country in the Europe region and is a good example of a free trade market for countries seeking to adopt this economic system, even though its labor and financial freedoms can be better improved. The country’s economy experienced slowed growth between 2017 to 2020 and picked up in 2021. The economy is largely dependent on trade hence it has a robust export sector that is dominated by foreign multinational companies. Some of the products exported include pharmaceuticals, machinery and equipment, foodstuffs, computers, medical devices, chemicals, and animal products.
When countries in the European Union underwent a financial crisis in 2008, Ireland was the first country to recover; this is due to its free enterprise economy. The country has an independent judicial system, and outright corruption in the public sector is rare with known cases being investigated and prosecuted. Its property rights are well protected and expropriation is rare. Although the top individual income tax rate is pretty high, 41%, the top corporate tax rate is just 12.5%. Other applicable taxes are capital gains and value-added tax.
Due to the low corporate tax rate, a lot of businesses strive. Additionally, it has an advantageous geographical location, cooperative labor relations, and a dynamic labor market and is the only English-speaking country in the European Union. Ireland has a stable banking sector with its government having golden shares in two banking groups. Both domestic and foreign companies are treated equally, thus competition between companies exists. The country further has an efficient investment regime. All these combine in making it a free enterprise economy.
New Zealand is one of the most prosperous countries in the Asia-Pacific region and practices the free enterprise economic system. Its economy grew steadily between 2017 and 2018, slowed in 2019, contracted by 3% in 2020, and recovered in 2021. The deregulation and privatization of its economy are chief among the reasons why the free enterprise system strives. Its top business sectors include manufacturing, geothermal energy, agriculture, and tourism.
It has an effective and independent judiciary. Its government has high integrity due to the stiff penalties meted on government officials who have been found to be corrupt. The country was ranked first out of 180 countries in Transparency International’s 2021 Corruption Perceptions Index along with Finland and Denmark.
The country’s property law became more simplified and modernized with its 2017 Land Transfer Act. Its top tax rate for corporate entities and individuals is 28% and 33% respectively. The online business tax rate is 15% and the country’s unemployment rate is low. Its banking sectors are competitive and well-established. Additionally, New Zealand’s openness to global trade and investment is firmly institutionalized thus adding to the overall free enterprise economy it operates.
Example of a free enterprise country: Luxembourg
Luxembourg is another country in the Europe region that has had sustained economic growth between 2017 and 2018. By 2019, its growth rate reduced, and then by 2020, the economy contracted by 1.3% when Covid-19 hit. Economic activities picked up in 2021, registering renewed economic growth. It has an open market whose economic growth has remained vigorous through the years making the country enjoy high levels of prosperity.
The country’s fiscal health, business freedom, and investment freedom are robust with the recession in 2009 being it’s first in 60 years. Luxembourg is a mixed economy that functions both in the services and manufacturing fields. Its financial services sector accounts for 25% of its Gross Domestic Product (GDP). It has a reliable electricity grid which makes energy costs low. It also has a growing data-storage sector, hence, it is fast becoming a hub for the information economy. The lack of restrictions on foreign ownership has further expanded economic activities.
Luxembourg has strong property rights, an independent judiciary, stable governance, and an open and transparent economy. Corruption is effectively combated through regulations, laws, and penalties. For taxes, the top individual income tax rate is 42% while that of top corporate entities is 17%, thus, the tax rate encourages entrepreneurship and the establishment of businesses.
It has a robust financial sector that has remained strong through transitioning to telework since the pandemic, thus, the financial sector is well-capitalized and competitive. Overall, the solid institutional foundations of the free enterprise system have sustained investment activities and the economy as a whole. through the are sustained
Taiwan as an example of a free enterprise country
The free market of Taiwan has made it experience continued economic growth. The economy has grown right through 2020 by 3.1% when most economies declined due to the effects of the Covid-19 pandemic. Taiwan’s economic freedom, labor freedom, and judicial effectiveness have also increased steadily through the years making the country’s economy one of the wealthiest in Asia. It has a competitive manufacturing sector that is trade-dependent and comprises petrochemicals, electronics, machinery, and information and communication technology products.
As with other free enterprise economies, the role of the government in economic activities is minimal. It implements regulations, laws, and penalties to combat corruption especially since the country’s politics is closely intertwined with large businesses. Additionally, in order to accelerate the industrial transformation that will serve as a bedrock for external market expansion and boost domestic demand, the government of Taiwan subsidizes research and development.
The judiciary is independent and property rights are secured and well-enforced. Regarding taxation, the top individual income tax rate is 40% while that of corporate organizations is 20%; other taxes include value-added tax. In order to expand employment opportunities for its citizens who are above 45 years, the Middle-Aged and Elderly Employment Promotion Act was passed in 2019. The financial sector is dominated by banking and has gradually become more competitive; offering a variety of financial instruments to investors. This has further facilitated the flow of goods and capital.
Another free enterprise example is Estonia. It is a country in the Europe region that has had a vibrant record of economic freedom over the years. In the past five years, its economic growth slowed between 2017 to 2019, contracted by 2.9% in 2020, and rebounded in 2021. Its economy is dependent on its robust telecommunications and electronic sectors as well as its strong regional trade ties. Contracts and property rights are secure, recognized, and well-enforced. Expropriations are permitted and the owners are compensated based on the property’s market value.
Estonia’s judiciary is independent and free from political influence. Businesses have a high degree of freedom to operate without the interfering hand of the government. Corruption is minimal as effective mechanisms are in place to investigate and punish such incidents. For taxation, the top personal income tax rate and corporate tax rate are 20%; Value-added tax and excise tax exist.
Undistributed profits are not taxed. An aging population and a negative birth rate have negatively affected the country’s labor force hence labor laws are extremely favorable to employees. Government policies do not significantly interfere with foreign investment. All these cumulate in making the country a good example of a free enterprise economy.
Netherlands as an example of a free enterprise country
Another country in the Europe region that is an example of a free-trade country is the Netherlands. Just like Estonia its economy slowed between 2017 to 2019, declined by 3.8% in 2020 due to the pandemic, and rebounded by 2021.
This five-year period has recorded an expansion in the country’s economic freedom. It is one of Europe’s top transportation hubs, having the fifth largest economy in the European Union (EU) which is supported by a highly mechanized and profitable agricultural sector, exports of refined petroleum, chemicals, and electrical machinery. Property rights are well protected and contracts are reliably enforced.
Anticorruption laws are effective and aid government integrity. The tolerance level for political corruption is minimal and cases that occur are prosecuted expeditiously. Its judiciary is independent of political influence; this makes it provide impartial adjudication of disputes. It has a high taxation rate when compared to other aforementioned countries such as Singapore with top individuals taxed at 52% and top companies taxed at 25%.
Environmental taxes and value-added taxes also apply. Although the business community is known for its innovation, starting a new enterprise or resolving insolvency is hard despite its being a free enterprise. However, most of its sectors are open to foreign investments.
Example of a free enterprise country: Finland
Finland is another country in the Europe region that has a free enterprise economic system. Although the country’s economy contracted by 2.9% in 2020 due to the effects of Covid-19, the past five years ranging from 2017 – 2021 have seen the country experience considerable expansion to its level of economic freedom with a significant increase in its judicial effectiveness, property rights, and government integrity.
Additionally, trade freedom, monetary freedom, and business freedom are strong. Finland is an export-led economy centered on manufacturing in the telecommunications and electronics industry, metals, and wood.
Contractual agreements are strictly honored, and property rights and intellectual property are well protected and enforced. The top tax rates for individuals and corporate entities are 31.3% and 20% respectively. Additional taxes are the value-added tax and capital income tax. Due to its highly free market, not all trades require a license to operate; only a notification or registration with the authorities is required for certain business operations.
However, The scant working-age demographic and aging population are threatening the future economic growth of the country. Its labor laws are rigid and excessive.
Finland’s competitive financial sector provides a wide range of services. Government policies generally do not interfere significantly with foreign investment.
Example of a free enterprise country: Denmark
When it comes to countries that practice the free enterprise system, countries in the Europe region seem to be topping the charts. Denmark is a country in the Europe region and has had a five-year trend of expanding economic freedom led by strong business freedom, fiscal health, and a robust rule of law. Its economy contracted by 3.3% in 2020 due to the effects of the pandemic. It has a modern economy that is well integrated into the global marketplace.
The economy depends largely on foreign trade and the private sector. Entrepreneurship abounds and finds expression in many small and medium-sized companies. The financial sector is quite resilient and well-institutionalized.
Denmark has some of the world’s leading companies in the processed foods, maritime shipping, and pharmaceutical sectors. Intellectual property rights are respected and enforcement is based on world standards. It also has a trustworthy, fair, and independent judicial system. The top Individual income tax and top corporate tax rates are 56% and 22% respectively.
There is also a value-added tax and inheritance tax. Business regulations are well-defined and simple to understand. Entrepreneurship thrives, and wage and labor conditions are established through collective bargaining with union members comprising 75% of Denmark’s labor force. Its free enterprise is further sustained through competitiveness which facilitates large flows of investments in the country.
See also: Cronyism
Examples of businesses as free enterprise
The businesses that operate as free enterprises are usually those that exist in countries where the free enterprise system is practiced such as the ten countries discussed above. Hence, various businesses in different sectors are free enterprises. Since a free enterprise is any economy that operates with little or no government interference, it goes further to say that a free enterprise business is any business that operates with little or no government interference.
For instance, a fast-food chain such as MacDonald’s is an example of a free enterprise business since it was started without compulsion or interference by the government. Furthermore, it is run by its owners and their only obligation to the government is the payment of the appropriate taxes and working within legally acceptable standards of operating in their industry.
Another free enterprise business in the United States that has benefited greatly from the Covid-19 pandemic is the retail company, Amazon. Due to their ability to deliver goods globally and the global shutdown that was occasioned by the pandemic, a lot of people around the globe took to online shopping to meet their various needs for products that were readily available and could be purchased from this retailer.
Furthermore, all entrepreneurship ventures can be examples of free enterprise businesses as these enterprise spring up out of the free will of the individual or group of individuals that develop the business blueprint and choose to start them.
See also: 6 main characteristics of capitalism
It is important to note that there is no free enterprise example that is 100% devoid of government influence, however, the degree of government influence varies from one country to another and from one business sector to another. Sectors that influence the country’s survival and safety such as food, shelter, clothing, and security usually have a higher extent of government regulation or interference when compared to other sectors.
Overall, how economically free a country is will determine the level of its economic growth since government restrictions generally stifle entrepreneurship, innovation, and foreign investment and an enabling environment for individuals to free strive and pursue their economic desires. It is therefore important that whenever governments get involved in the economy, it should be strictly on the basis of curtailing abuses and ensuring that the parties involved in various business transactions honor their own part of the contract.
Video: Free enterprise examplesLast Updated on January 14, 2023 by Blessing Peter Titus
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