Lecture Business and society - Chapter 11: Business, Government, and Regulation

Contents: 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.

© 2015 Cengage Learning 1

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.

© 2015 Cengage Learning 3

Chapter Outline

• The Pendulum of Government’s Role in

Business

• The Roles of Government and Business

• Interaction of Business, Government, and the

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 © 2015 Cengagje Learning 5

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

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A Clash of Ethical Systems

Interaction of Business,

Government, and the Public

(1 of 2)

Government-Business relationship -

• Government influences business through

regulation, taxation, and more

• Business influences government by

lobbying, and more

Public-Government relationship -

• Public influences government through

voting and forming special interest groups

• Government influences the public with

politicking, public policy formation, and other political influences

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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

Government’s Nonregulatory Influence on

Business

Two major nonregulatory issues -

•Industrial policy

-• Concerned with the role of

government in a national economy.

•Privatization

-• 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.© 2015 Cengage Learning 15

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

Government’s Regulatory Influence on

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

•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.

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Types of Regulation (1 of 2)

Types of Regulation (2 of 2)

21

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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 © 2015 Cengage Learning 23

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.© 2015 Cengage Learning 25