Many people believe that corporations should be able to operate freely without government regulation or interference.  Discuss the benefits and drawbacks associated with this laissez-faire type of...

Many people believe that corporations should be able to operate freely without government regulation or interference.  Discuss the benefits and drawbacks associated with this laissez-faire type of philosophy.

Asked on by eschley14

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

In a purely capitalist economy, corporations and individuals would be able to do whatever they wanted, economically speaking, without having the government regulate them.  There would not be minimum wages.  There would (if we are truly having a purely laissez faire system) be no safety regulations or rules against corporations polluting the environment.  This system would clearly have both benefits and drawbacks. 

The main benefit of such a system is that it would allow for economic growth.  Companies would be able to make more things at lower prices if there were no regulation.  If companies did not have to spend money doing things like filling out paperwork to show that they were complying with government regulations, they would have more money to spend on more beneficial things like research and development. 

If there were no regulation, companies would also do only those things that made the most economic sense.  With our current system, companies do things to take advantage of tax breaks or to exploit regulatory loopholes.  These are things that do not necessarily help them make better products at lower prices.  Economists say that regulations “distort” the incentives that companies face.  If there were no regulations, there would be no distortions and companies would only do things that would help themselves and, thereby, help consumers.

Finally, we can say that there would be more economic freedom if there were no regulations.  People would be able to do whatever they wanted without the government interfering.  Democracy is based on the idea of personal liberty and freedom from governments telling us what to do.  In this sense, we could say that a laissez faire system would be freer and more democratic.

However, there are also many drawbacks to a purely laissez faire system.  These drawbacks can generally be summarized by saying that companies would do too many things in a laissez faire system that would hurt consumers, taxpayers, and workers.  For example, if there were no safety regulations we could expect that factories and other employers would not bother to provide safe working environments if they figured that they would come out ahead by doing so.  They might have to pay out a few settlements to workers who got hurt on the job, but if they saved enough by skimping on safety precautions, it would be worth it.  Companies that were not regulated would presumably not care enough to limit the amounts of pollutants that they emitted.  They might have to fear that the public would turn against them and would not buy from them if they polluted, but this is not likely to be a fear that would be serious enough to make them refrain from polluting.  In short, when we were closer to a laissez faire system in the late 1800s and early 1900s, our workers and consumers suffered.  Workplaces were unsafe and accidents were common.  Companies were free to sell defective or dangerous goods.  This is, we can argue, the major drawback of having a laissez faire system.

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chrisyhsun's profile pic

chrisyhsun | Student, College Freshman | (Level 1) Salutatorian

Posted on

In discussing the benefits and drawbacks of laissez-faire capitalism, I find it easier to understand by looking at the drawbacks first and then thinking about the benefits

Drawbacks

Government regulation and interference is put in place to watch out for the everyday consumer. For example, the FDA was first established (and continues its mission today) to ensure a certain standard of quality in consumer goods. Additionally, government regulation prevents the presence of monopolies. A monopoly occurs when one entity controls a vast chunk of a certain market, which essentially gives that entity the power to decide prices in that market. For example, if one company controlled all the potatoes, they could set an exorbitant price for potatoes and individuals who want potatoes would have no choice but to go along with it. As such, the disadvantage of laissez-faire practices is that when corporations are given free rein to do whatever, it is possible that issues such as product quality and monopolies will crop up.

Benefits

The reason I responded to this question with drawbacks first is because some benefits of laissez-faire practices stem from the opposite of the drawbacks. Most notably, without government interference, companies don't have to worry about fitting into every single law, thus allowing them to decrease on cost (in terms of the required number of inspections and such) as well as making it easier for the company to respond quickly and flexibly to issues as they arise. 

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