What Is a Private Enterprise Economy?

A private enterprise economy is an economic system where the means of production and distribution are owned by the private sector, which carries business for profit-making reasons. This economic system is driven by innovation, with the government placing few restrictions on business enterprises.

In a private enterprise economy, firms have the freedom to buy and sell to any consumers. Prices in a private enterprise economy are driven by market forces of demand and supply. The consumer is an integral part of the economy, since all private enterprises function for profit-making objectives. Consumers therefore enjoy sovereignty and the freedom to choose from a variety of producers in the market.

Investors' interest in the economy is to increase their investments in different sectors of the economy, which drives competition between enterprises for a share of the market. Firms in this economy engage in private initiatives to produce better products than their competitors. This drives assets ownership and capital investments into the private sector.

The government's role in a private enterprise economy is to safeguard the interests of private firms by maintaining a viable atmosphere for business. This includes maintaining law and order, safeguarding private property and enforcing contracts. On the other hand, the government benefits from a private enterprise economy by levying taxes on private firms.