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What are the positives and negatives of laissez-faire capitalism?

The main positive of laissez-faire capitalism is that it tends to be a more efficient method of allocating goods and resources. The main drawback is that it vests considerable power in the hands of large companies, which invariably abuse that power.

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Generally speaking, laissez-faire capitalism is the name given to the economic system that prevailed in the United States and Western Europe in the mid nineteenth century, though certain of its features lingered on until the early twentieth century.

Under this system, the government intervened in the running of the economy as little as possible, allowing decisions concerning the production and allocation of goods to be determined by firms operating in a largely unfettered market economy. To be sure, governments still had an important role to play, albeit a very limited one. They established the legal framework in which companies operated and protected private property rights.

The main advantage of laissez-faire capitalism was that it was generally a very efficient method of producing and allocating resources. Primarily, this was because firms were in a position to respond quickly to price changes in the market, which acted as a signal to what goods should be produced and in what quantities. With government not involved in the day-to-day running of the economy, firms could concentrate on what the market was telling them instead of having to pay attention to bureaucratic controls.

Laissez-faire capitalism was not without its downsides, however. Without effective government regulation in place, firms were free to engage in all manner of unscrupulous behavior, whether it was forming cartels, polluting the environment with impunity, or driving down wages and conditions for their workers.

Over time, it became abundantly clear that these drawbacks greatly outweighed any benefits that laissez-faire capitalism might bring. That being the case, governments gradually began to become more involved in regulating capitalism. Among other things, this involved ensuring fair competition between companies and imposing a legal requirement on firms to adhere to clean air standards and minimum working conditions for their employees.

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Laissez-faire capitalism has been praised for its advantages and criticized for its disadvantages. Let's look at some commonly cited pros and cons of this system.

Advantages: Laissez-faire capitalism allows companies to compete freely with each other in an open marketplace. They have the freedom to set their own prices and market their products and services as they see fit. When there is competition, this often results in lower prices for consumers and a faster accumulation of wealth for corporations. Without restrictions from the government, there is more incentive for innovation, and technological advances can take place. Companies are more incentivized for efficiency since they are not burdened with restrictions imposed on them through regulations.

Disadvantages: Sometimes corporations in a laissez-faire system do not have the best interests of the public in mind. Without regulations, corporations are free to cause environmental and public health problems in the name of profit. Workers are more likely to be exploited and subjected to unsafe working conditions. It becomes possible for companies to form monopolies under a laissez-faire system. This leads to price increases for the consumer and the lack of diversification in the marketplace. This can result in a large wealth gap in a society with a few very rich people in control of the majority of the economy's wealth.

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Laissez-faire is a concept that advocates for limited government involvement in and regulation of our economy. There are advantages and disadvantages to this philosophy.

One advantage to this philosophy is that businesses face fewer government rules and regulations. This allows businesses the freedom to do many things. Often rules and regulations add to the costs that businesses face. Sometimes, the rules and regulations make it harder to do business activities. When businesses have fewer rules and regulations, they generally are willing to take more risks and to invest in the economy. With fewer rules and regulations, businesses have a big incentive to try to maximize profits.

A disadvantage of this policy is that businesses may engage in risky behaviors that could lead to future economic problems. In the 1920s, there were few rules and regulations on banks and on the investment industry. Too much money was being loaned to individuals and people could buy stocks with only a small down payment. Banks were also free to invest in the stock market. When the stock market crashed, many people and banks were financially ruined.

Another disadvantage is that government may be slow to respond to a crisis. In laissez-faire economics, the belief exists that the economy goes through cycles, and things will eventually work themselves out. When the Great Depression began, the government did very little because it expected things to eventually improve. By the time the government took more actions, the depression was very severe, and many people were hurting from the effects of the Great Depression.

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The major positive of laissez faire capitalism is that consumers get the lowest possible prices and, typically, the highest possible quality of product.  This happens because companies do not have to spend a lot of money complying with things like minimum wage laws or labeling their products with all sorts of warnings or anything like that.  Laissez faire also allows companies to compete with one another (as when airlines got deregulated) and that at owers prices.  (Airline prices and phone service prices are both much lower than they were back in the early 80s when the industry was more heavily regulated.)

The main negative is that laissez faire allows firms to do bad things to their workers and (if they can get away with it) to the their customers.  In a true laissez faire system, workers might not be protected from unsafe workplaces.  Firms might sell products that were not sufficiently safe.  Firms would be allowed to pollute more than they can now.  When government does not impose any rules, it becomes more possible for bad results like this to hapen.

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