Business and society ethics sustainability and stakeholder management 9e chapter 11

Chapter Outline• The Pendulum of Government’s Role in Business • The Roles of Government and Business • Interaction of Business, Government, and the Public • Government’s Nonregulatory I

Chapter 11

Business, Government, and Regulation

Learning Outcomes

1 Articulate a brief history of government’s role in its

relationship with business.

2 Appreciate the complex interactions among business,

government, and the public.

3 Identify and describe government’s nonregulatory

influences, especially the concepts of industrial policy and privatization.

4 Explain government regulation and identify the major

reasons for regulation, the types of regulation, and issues arising out of deregulation.

5 Provide a perspective on privatization versus federalization,

along with accompanying trends.

Chapter Outline

• The Pendulum of Government’s Role in Business

• The Roles of Government and Business

• Interaction of Business, Government, and the Public

• Government’s Nonregulatory Influence on Business

• Government’s Regulatory Influences on Business

• Deregulation

• Summary

• Key Terms

Business, Government,

and Regulation

• The government tends to become involved in

business after serious problems arise, and

there has been no shortage of problems

tech stock plunge, and the Enron, WorldCom and other scandals The collapse of the housing market put the economy on the brink of

collapse

• That decade swung the pendulum of

government involvement in business from

minimal to major player

The Pendulum of Government’s Role in Business

• The areas in which government regulates

change, and its varying roles increase the

complexity of its relationship with business

Government can:

• Determine the rules of the game

• Be a major purchaser with buying power that

can affect a business’ or industry’s chances of survival

• Strengthen some businesses and weaken others

• Create new businesses and industries through

subsidization and privatization

The Roles of Government and Business

• For effective management, government’s role as

a stakeholder must be understood

• What should be the respective roles of business

and government in our socioeconomic system?

• If the role of business were simply production

and distribution of goods and services, business would need little regulation

• But other goals exist – safe working

environment, equal employment opportunities, fair pay, clean air, safe products – which

business does not automatically factor into the business decision making process

• As a result, it falls to government to ensure

those goals are achieved

A Clash of Ethical Systems

Interaction of Business, Government, and the Public (1 of 2)

GovernmentBusiness relationship

-• Government influences business through

regulation, taxation, and more

• Business influences government by

lobbying, and more

PublicGovernment relationship

-• Public influences government through

voting and forming special interest groups

• Government influences the public with

politicking, public policy formation, and other political influences

Interaction of Business, Government, and the Public (1 of 2)

BusinessPublic relationship

-• Business influences the public through

advertising, public relations, and other forms of communication

• The public influences business through

the marketplace, or by forming special interest groups.

Interaction Among Business, Government, and the Public

-• Whether current public functions (e.g.,

public education, public transit, social security, fire service) should be turned over to the private (business) sector?

Privatization -

•The process of changing a public organization

to private control or ownership

•The intent is to capture the discipline of the free market and a spirit of entrepreneurial risk- taking

•Two functions a government might perform:

• Producing a service

• Providing a service

The Privatization Debate

-•Some activities cannot be effectively handled

by the private sector

•Privatization produces uneven results in

efficiency gains and cost savings

•Privatization works best when the pursuit of

profits does not work against broader social goals

or public policy

Other Nonregulatory Government Influences

Government is:

• A major employer

• A standard setter

• One of the largest purchasers

Government influences business by:

• The use of Subsidies

• Transfer payments

• Loans and loan guarantees

• Taxation

• Monetary policy

Government’s Regulatory Influence on Business

• Government Regulation has become the most controversial in the business-government

relationship, affecting every aspect of how

business functions

• Most people agree that some regulation is

necessary to ensure that consumers and

employees are treated fairly, and not

exposed to hazards, and to protect the

environment

• However, businesses also think that

regulation has often been too extensive in

scope, too costly, and burdensome in terms

of red tape

Regulation - What Does It Mean?

Regulation -

•The act of governing, directing according to rule,

or bringing under the control of law or constituted authority

•A federal regulatory agency

-• Has decision-making authority

• Establishes standards

• Operates principally on domestic business

• Has members appointed by the President

subject to Senate confirmation

• Has its legal procedures governed by the

Administrative Procedures Act

Reasons for Regulation

Most regulation arises out of a market failure.

Types of Regulation (1 of 2)

Types of Regulation (2 of 2)

Comparison of Economic and Social Regulation

Issues Related to Regulation

-Innovation may be affected –

•When corporate budgets must focus on “defensive research” certain types of innovation are less likely to take place

New investments in plant and equipment

may be affected –

•To the extent that corporate funds must be used for regulatory compliance, they are diverted from more productive uses

Small business may be adversely affected –

•Federal regulations can have a disproportionately adverse effect on small firms because of the (lack of) economies of scale

Deregulation

-Represents a counterforce - aimed at

keeping the economy in balance A continual striving for the balance of freedom and control for business will be best for society

Purpose of Deregulation

-• Intended to increase competition with

hopes for greater efficiency, lower prices, and enhanced innovation.

The Changing World of Deregulation

• Deregulation which began in the 1980s had

mixed results.

• Some prices fell, but more competitors were

unable to compete with the dominant firms.

• The savings & loan industry crisis cost the

government a $124 billion bailout.

• Repeal of the Glass-Steagall Act caused the

global recession that began in 2008

• The dilemma is how to enhance competition

without sacrificing applicable social

regulations such as health and safety

requirements.