Today, most of the countries do not possess pure capitalism but a mixture of free market and governmental regulations of the businesses. Owning a business in a mixed economy structure can be very challenging due to government intervention in the economy. In contrast, operating a small business in an ideal capitalist economy can open up new possibilities, help to increase profitability, and solve the issues connected to production.
According to Gaus (2010), the ideal capitalism is associated with “maximally extensive feasible property rights,” which implies the absence of legislative regulations for the industries and businesses in them (p. 75). This paper will analyze an example of owning a bakery under the conditions of capitalism in its purest form. The purpose of this piece of work is to examine the process and included activities of small business’s ownership in ideal capitalism and evaluate the possible sides of the concept.
First, it is crucial to understand what an ideal capitalist economy means. The definition of purest capitalism lies in the description of capitalism itself because it is the original idea behind this structure. Capitalist economy refers to the system where private individuals or groups of individuals have ownership and control over property according to their interests (Janah & Mahmud, 2015).
Besides, supply and demand are responsible for setting the prices, “in a way that can serve the best interests of society” (Janah & Mahmud, 2015, p. 44). Consequently, an ideal capitalist economy system would be driven by the private actors who operate their business freely, without governmental regulations, and where the prices are fair, according to the existing supply and demand. A small bakery existing in the following structure would first examine the demand for the provided goods, and after that, according to the results, it would determine the supply.
As a result, the business will be operating without experiencing substantial losses but providing fair pricing to the customers. The most significant characteristic of ideal capitalism is the generation of profits for private owners. For the owner of a small bakery, it would be possible to increase the revenues and decrease the liabilities due to the absence of legislative rules, which will create an increase in profits.
Moreover, the issue of sustainability can also be solved, because with supply and demand setting the prices, it will be possible to predict the required amount of goods to produce. Thus, it will be possible to maintain the operations of the bakery at a certain level in the long-term. In such a way, an ideal capitalist economy sounds like an attractive structure for the owners of small businesses, because it can positively influence profits and sustainability.
Although the ideal capitalist structure implies the freedom of choice, the limited role of the government, and a price determination mechanism, it is critical to remember about the real competition. Capitalism implicates the freedom of entering the market for those who have an interest in it, which leads to the high threat of new entrants. Consequently, there might be numerous bakeries within the industry that would represent the competitors of the business.
Still, competition under a perfect capitalist economy can “maximize social welfare, that is, the joint welfare of both producers and consumers” (Janah & Mahmud, 2015, p. 44). Having competitors under the circumstances, where the interactions between consumers and sellers set the prices, can be beneficial for all the players in the industry. Demand and supply influence the prices that, in turn, allocate the resources and influence the employees’ wages (Janah & Mahmud). Therefore, this cycle creates high rewards for business owners and their workers.
The next essential point for consideration is the measurement of goods offered in a bakery. In this aspect, it is vital to reckon the economic indicators, such as Gross Domestic Product (GDP), inflation, or consumer spending. According to Hahn (2014), GDP is an estimation “of the value of all the goods and services produced in a specific region” that also serves as a measure of the region’s overall economy (para. 2). Thus, following the fluctuations in GDP, it will be possible for a bakery owner to see the growth or decrease in the economy, which will give them a representation of how to measure offered goods.
Economic growth implies an increase in GDP, which involves the rise of the national wealth and production capacity (Haller, 2012). Hence, with high rates of economic growth, the levels of production can increase even in a small business, which will lead to the creation of more job opportunities in the market.
Besides using GDP as an indicator to measure the produced goods in a bakery in an ideal capitalist economy, consumer satisfaction remains one of the most crucial factors. As discussed above, in the purest version of capitalism, the interaction between buyers and sellers determines the market prices. As a result, any business should strive to have high demand for its products from satisfied customers, which implies generating more loyal customers and attracting new ones. Customer satisfaction is “a measurement that determines how happy customers are with a company’s products, services, and capabilities” (“What is customer satisfaction,” n.d., para. 1). High levels of consumer satisfaction implicate more buyers returning to the bakery, which, in turn, generates higher supply and can help to measure the products.
In an ideal capitalist economic system, the quantity demanded in a bakery plays a crucial role in the business’s performance. Price is the factor that can influence the quantity demanded in a way that lower prices can generate higher demand. Under the circumstances of the increased demand, the bakery will have to increase the supply to remain profitable and maintain sustainability. Increased supply requires more employees or working hours for the existing workers, which reduces the unemployment rate. A small must be able to keep up with the demand of the products because the customers have freedom of choice and can buy the same goods from other producers. Consequently, with the impacted quantity demanded, the business needs to respond with a changed supply that will balance the market mechanism of the ideal capitalist economy.
The small bakery discussed in this paper will sell its products mostly to the population of the region where it is located. Due to the small size of the business, the bakery does not offer franchise options, which limits its presence around the country. Thus, the goods will be produced mostly for the locals who enjoy baking products and want to bring something delicious home for their beloved ones or friends. The primary target market for the business will be represented by the population starting from young adults till old ages. Due to the nature of the business, it does not distinguish any specific targeted group, to whom to sell the produced goods.
The chosen type of business will be a part of the baking industry. Today, the baking industry represents a substantial player in the American economy. According to the American Bakers Association, the baking industry accounts for more than $300 billion in total economic output, which corresponds to around 2.1% of GDP (“Baking industry economic impact study,” n.d.). In such a way, in a current economic structure, the activities of the baking businesses influence the country’s GDP, which, in turn, affects the production and employment, and the amount of taxes paid. In a perfect capitalist economy, the bakery’s activities will have an impact on the region’s GDP and, consequently, on the employment rate and production capacity.
Moreover, the bakery’s operations will impact competition with the industry. Still, it is crucial to remember that the purest form of capitalism is characterized by the absence of government regulations, which limits the business’s impact on the legislature.
Another crucial point to consider is the influence of price flooring on the labor market, sales, and production. The regulations imposed on the set prices will lead to the higher prices that customers have to pay. The free market implies affordable prices for the individuals, and with price flooring in effect, the rates will increase. Higher prices can lead to a lower quantity demanded, which will lead to lower supply under the existing market mechanism. Lower supply will negatively influence the labor because it can lead to higher unemployment rates. In such a way, the price floor can have severe consequences for the small business, including lower sales, lower production, and the contribution to the increased unemployment in the labor market.
In conclusion, an ideal capitalist economy with its significant pillars can have many advantages for small businesses. Still, it is crucial to remember that “the forces that generally lead to the success of capitalism can also usher in its failure” (Jahan & Mahmud, 2015, p. 45). Considering such factors as GDP and customer satisfaction is also essential for the businesses in a perfect capitalist structure. Different indicators can shape the company’s performance, and the leaders need to be able to respond to emerging needs and changes.
References
Baking industry economic impact study. (n.d.). Web.
Gaus, G. (2010). The idea and ideal of capitalism. In G.G. Brenkert & T.L. Beauchamp (Eds.), The Oxford handbook of business ethics (pp. 73-99). New York, NY: Oxford University Press.
Hahn, H. (2014). Why is GDP so important? Web.
Haller, A. P. (2012). Concepts of economic growth and development challenges of crisis and of knowledge. Economy Transdisciplinarity Cognition, 15(1), 66-71.
Jahan, S., & Mahmud, A. S. (2015). What is capitalism? Finance & Development, 52(2), 44-45.
What is customer satisfaction? (n.d.). Web.