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

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mkoren eNotes educator| Certified Educator

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.

pohnpei397 eNotes educator| Certified Educator

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.