Free-market capitalism

Definition

Free-market capitalism is an economic system where prices for goods and services are determined by open competition between privately owned businesses. This system promotes minimal government intervention, allowing individuals and companies to operate freely in the marketplace, which fosters innovation and consumer choice while driving economic growth.

5 Must Know Facts For Your Next Test

1. Free-market capitalism gained prominence in the 19th century as a response to mercantilism and colonial trade policies, influencing U.S. relations with Latin America.
2. In Latin America, the introduction of free-market policies often came with U.S. intervention, as the U.S. sought to expand its economic influence in the region.
3. The implementation of free-market capitalism in Latin American countries has led to significant economic growth, but it has also contributed to social inequalities and economic instability.
4. Trade agreements between the U.S. and Latin American countries often reflect principles of free-market capitalism, promoting lower tariffs and greater access to markets.
5. Critics argue that free-market capitalism can lead to exploitation and environmental degradation in Latin America, as corporations prioritize profit over social responsibility.

Review Questions

• How has free-market capitalism influenced U.S. relations with Latin America historically?
  • Historically, free-market capitalism has shaped U.S. relations with Latin America through policies that promote economic engagement and trade liberalization. The U.S. has often intervened in Latin American economies to encourage free-market reforms, reflecting a desire to expand its influence and secure favorable trade conditions. These actions have created both opportunities for growth and tensions due to perceived exploitation and imbalances of power.
• Discuss the impact of free-market capitalism on social inequality in Latin American countries.
  • The adoption of free-market capitalism in Latin America has led to notable economic growth; however, it has also resulted in increased social inequality. While some segments of society have benefited from market opportunities, many others have been left behind, exacerbating disparities in wealth and access to resources. This tension raises questions about the sustainability of such an economic model when addressing the needs of marginalized populations.
• Evaluate the criticisms of free-market capitalism regarding environmental impacts in Latin America.
  • Critics argue that free-market capitalism can have detrimental effects on the environment in Latin America due to the prioritization of profit over sustainability. This approach often leads to resource extraction practices that harm ecosystems and indigenous communities. The lack of regulation allows businesses to exploit natural resources without considering long-term environmental consequences, raising concerns about biodiversity loss and climate change, which have far-reaching implications for the region's future.

Related terms

Laissez-faire: An economic philosophy of free-market capitalism that advocates minimal government interference in economic affairs.

Neoliberalism: A political-economic approach that emphasizes free markets, deregulation, and reduction of government spending in favor of private enterprise.

Protectionism: Economic policy aimed at shielding a country's domestic industries from foreign competition through tariffs and other trade barriers.