The term laissez faire refers to an economic system wherein the government takes a “hands-off” approach to transactions by and between private parties. The term literally translates to mean “let go” or “allow to act.” The idea is that, in such an economic system, free enterprise will regulate itself, as if one party offers a product that is of low quality, people won’t buy it. Examples of laissez-faire transactions that the government leaves alone include regulations, tariffs, subsidies, and privileges. To explore this concept, consider the following laissez faire definition.
Definition of Laissez Faire
- A system of government or other leadership that takes a “hands off” approach to issues and transactions between private parties.
1815-25 French (allow to act)
Laissez Faire Example in Leadership
A laissez faire attitude may apply to more than just governments’ relationship with private party transactions. Employers and other organizations around the globe sometimes adopt a laissez faire leadership style, which is also referred to as “delegative leadership.” Delegative leadership is not a typical leadership style at all, as the leaders are more hands-off, and allowing members of the group to work together, and to make decisions free from their leaders’ constant influence. Interestingly, experts have found, after measuring the performance of these kinds of groups, that this is actually the least productive form of leadership in existence.
When a laissez faire leadership model is applied in the business world, leaders provide very little guidance to their group members. In laissez faire examples, group members are free to make their own decisions, and expected to solve their own problems, though leaders do provide them with the necessary tools to do so. While decision-making power lies in the hands of the individuals, their leaders still take responsibility for the decisions and behaviors of the group as a whole.
Pros and Cons to Laissez Faire Leadership
In any system of leadership, from small company to governmental agency, there are methods that work better for some than others. A laissez faire style can only be successful in certain environments, with people of a certain personality type. The following are pros and cons to laissez faire leadership to be considered when choosing a style.
The Pros of Laissez Faire Leadership
In a laissez faire leadership model, group members can be even more effective when it comes to problem-solving, because they are often more knowledgeable in their areas of expertise than their leaders. One of the biggest pros of laissez faire leadership is the motivation such empowerment gives to group members, as they do not have to wait for approval by their leaders before they are able to take action. Leaders often underestimate this kind of autonomy and the positive effect it can have on the group. In most laissez faire example systems, those with this kind of freedom are often more satisfied overall with their work, and they develop a deeper passion for what they do. While the “laissez faire” categorization implies that the leaders are more hands-off, leaders can still make themselves available to individuals who may need to consult with them or get their feedback before finalizing a decision.
The Cons of Laissez Faire Leadership
While a laissez faire leadership model may sound ideal to some people, this approach can go wrong if the such power is left to a team whose members lack the resources or the experience to make the necessary decisions. Some people are simply not good with deadlines, and they’re even worse with them when they have to set them for themselves. Those who lack the necessary time management or organizational skills may find it difficult to manage their projects or solve their problems without some sort of guidance from their leaders. This lack of communication can lead to missed deadlines or disorganized projects, making even clearer the cons of laissez faire leadership.
Because laissez faire leaders are more hands-off, group members develop a misunderstanding that their leaders do not care about the outcome of the project, which is another con to laissez faire leadership style. These negative feelings can cause the group to unravel. If individuals feel like their leader doesn’t care about the end result, they too may develop a similar mindset. Less than savory leaders will jump on this kind of negative behavior as a way to use their group members as scapegoats, so that they personally avoid taking responsibility for the group’s failures.
Because group members receive either little guidance or none at all, they may feel despondent in that they don’t know what it is exactly that they’re supposed to be doing at any given time. Additionally, a laissez faire style used with larger groups may result in the group’s roles being poorly defined. It is vital that management doles out responsibilities very specifically, if they choose to take a step back from the project.
For these reasons, a laissez faire approach should be employed on a case by case basis, rather than being set as precedent. This way, if individuals are unsure of their responsibilities, they can feel free to check in regularly with their team leaders as necessary, and they are more likely to believe that their leaders will care enough about the project to help them.
The leader may ultimately decide to switch to a more delegative approach after the group proves that they have obtained the necessary skills to proceed on their own with little to no handholding from management. The concept of laissez faire insofar as governmental involvement can be better understood when applied to a business situation such as this one.
Laissez Faire Economy
A laissez faire economy is built on fundamental concepts, including:
- The individual is the basic unit in society.
- The individual has a natural right to freedom.
- The physical order of nature is a harmonious and self-regulating system.
These four points describe a laissez faire economy in a nutshell, though there is another basic element: all markets should make every effort to be competitive. Competition is something that the early advocates of a laissez faire economy were particularly passionate about, so it is surprising that this concept is often disregarded.
A landmark Supreme Court case dealing with laissez faire and how involved the government should be in private affairs is Lochner v. New York (1905). In Lochner, a New York law provided that employees of bakeries were only permitted to work a maximum of 10 hours a day, 60 hours a week. The Appellant, Lochner, was convicted and fined for allowing one of his employees to work longer than that previously established maximum.
The bakery owner appealed, claiming that the law was invalid because it was not a fair, reasonable, or appropriate exercise of governmental power. Lochner’s argument that the court’s interference was inappropriate was successful, as the Court overturned the trial court’s decision.
History of Laissez Faire Around the World
Eighteenth century Scottish moral philosopher Adam Smith expressed concern over the types of character produced by the capitalist economic system. Smith described the “landlords” of the system as passive, indolent, and inept, as their revenue came in simply by the existence of their lands. While it would seem that these leaders should be in favor of policies or actions that would ultimately be beneficial to their own coffers, many of them were lazy, and didn’t want to be bothered.
With no oversight, such a system could bring the downfall of an entire nation’s economic health. Throughout the years, there has been much debate over governmental and economic systems, and the history of laissez faire has evolved differently around the world.
Laissez Faire in the United States
In the United States, it has been argued that a direct governmental influence on the nation’s economy was always intended by the Founding Fathers. This was because the Articles of Confederation had thrown the new nation into economic chaos, and the Founders intended that the colonies’ hard-won independence not be spoiled by a financial dependence on powerful entities in Europe. To that end, strong governmental influences were allowed to permeate the areas of science, invention, commerce, and industry. The goal in allowing such a heavy governmental hand was to improve the country’s general welfare, and to help make the U.S. economy so strong that it didn’t need to rely on anyone else for help.
There are several s in U.S. history of successful governmental interventions, such as the establishments of the Patent Office in 1802, and the Office of Standard Weights and Measures in 1830. In addition, various Army expeditions to the West throughout the 1800s, starting with Lewis and Clark’s Corps of Discovery in 1804. The U.S. government also had a hand in establishing both the First and Second Banks of the United States.
Of course, many of these proposals were not instantly accepted by all, and most who were opposed to a laissez faire approach to U.S. capitalism supported the American School of thought, which was founded on the ideas of Alexander Hamilton. Hamilton’s ideas included the creation of a government-sponsored bank, and an increase on certain tariffs.
At the beginning of the 19th century, it became an accepted reality that the U.S. government’s relationship to the country’s industry was quite different from laissez faire in other countries. In fact, the U.S. embraced a mixed economy, which grew stronger during the period immediately following World War I and the Great Depression. Even now, from time to time, the government will involve itself in actively supporting the American industry so as to protect it from overseas competition.
Laissez Faire in Europe
The practice of a laissez faire system of government in Europe, as opposed to laissez faire in other countries, was widely promoted by certain successful merchants. These people believed that a country’s government should allow the laws of nature to dictate economic activity, and that the only time the government should get involved is when the country’s life, liberty, and property are being threatened.
French economist Francois Quesnay, who was directly connected to King Louis XV of France, suggested a laissez faire economic system to the King. The King liked the idea, and made France the first European country to embrace such a system by doing away with the tolls and restraints on the sale and transport of grain that existed at that time. This system was a success for years; however, in 1768, a poor harvest ended that success when the price of bread skyrocketed to the point where starvation in Europe exploded into a widespread epidemic.
Britain was no stranger to famine either, but many were opposed to improving conditions for their fellow citizens. In 1843, the newspaper The Economist – a paper that promoted laissez faire ideals – was established. Advocates for this system of government opposed sending food aid to those who were suffering in famine conditions that existed within the British Empire, and Economist founder James Wilson wrote, “It is no man’s business to provide for another.”
Laissez Faire in China
Debates regarding laissez faire have always been passionate ones in China, with some preferring as little governmental control as possible, while others are simultaneously fighting for the exact opposite, especially when it comes to limiting the extent to which companies can set their own prices, or preventing companies from establishing monopolies in money-making industries. Occasionally laissez faire practices are put into practice, only to be promptly withdrawn later on.
Monopolies in particular are a controversial issue. They would often be implemented during wartime when the economy is more fruitful, and then abolished later on. Monopolies were particularly prevalent during the Han and Tan dynasties, but later, during the Song and Ming dynasties, the government did away with them and didn’t look back for the entirety of those dynasties, opting for more laissez faire practices.
State monopolies were eventually brought back during the Manchu Qing dynasty. This was also the dynasty in which the government became a lot more hands-on with China’s overall economy. Many experts believe that this is a good explanation as to why China has never been afforded the chance to properly develop their own system of capitalism.
Related Legal Terms and Issues
- Capitalism – An economic system in which the things that are used to make and transport products are owned by private individuals, and private companies.
- Dynasty – A hereditary sequence of rulers of a country.
- Monopoly – Control or advantage held by one entity over the commercial market in any specific geographical region.