Business, Government, and Regulation
Chapter 11
Prepared by Deborah Baker
Texas Christian University
1
Business and Society: Ethics and Stakeholder Management, 7e • Carroll & Buchholtz
Copyright ©2009 by South-Western, a division of Cengage Learning. All rights reserved
Chapter 11 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.
4. Explain government regulation and identify the major
reasons for regulation, the types of regulation, and issues
arising out of it.
5. Provide a perspective on privatization versus
federalization, along with accompanying trends.
2
Chapter 11 Outline
A Brief History of Government’s Role
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
Discussion Questions
3
Introduction to Chapter 11
The chapter examines the relationship between
business and government, and in particular, the
government’s role in influencing business.
4
Government’s Role in
Influencing Business
1. Prescribes the rules of the game for business.
2. Purchases business’ products and services.
3. Uses its contracting power to get business to do things it wants.
4. Is a major promoter and subsidizer of business.
5. Is the owner of vast quantities of productive equipment and wealth.
6. Is an architect of economic growth.
7. Is a financier.
8. Is the protector of various interests in society against business
exploitation.
9. Directly manages large areas of private business.
10. Is the repository of the social conscience and redistributes
resources to meet social objectives.
5
Roles of Government and Business
What should be the respective roles of business and
government in our socioeconomic system?
Given all of the tasks that must be accomplished to
make our society work, which of these tasks should
be handled by the government and which should be
handled by business?
How much autonomy are we willing to allow
business?
6
Clash of Ethical Systems
Business Beliefs Government Beliefs
Individualistic ethic Collectivistic ethic
Maximizes concession to Subordinates individual goals
self-interest and self-interest to group
Minimizes the load of goals and group interests
obligations society imposes Maximizes obligations
on the individual (personal assumed by the individual
freedom) and discouraging self-interest
Emphasizes inequalities of Emphasizes equality of
individuals individuals
Figure 11-1 7
Social, Technological, and Value Changes
Major
MajorChanges
Changes Societal
SocietalValue
ValueChanges
Changes
National
Nationalsociety
society Youth
Youthmovement
movement
Communal
Communalsociety
society Consumer
Consumerprotection
protectionmovement
movement
Entitlements
Entitlements Ecology
Ecologymovement
movement
Quality
Qualityof
oflife Civil
life Civilrights
rightsmovement
movement
Women’s
Women’smovement
movement
Egalitarian
Egalitarianmovement
movement
8
Interaction Among Business,
Government, and the Public
Lobbying
Regulations and Other
Forms of Persuasion
Business
Business Government
Government
• Political Process
• Interest • Advertising • Voting • Politicking
groups • Political
• Public Relations • Interest Groups
• Not buying influence
products • Contributions
• Protests
Public
Public
Figure 11-2 9
Interaction Among Business,
Government, and the Public
Government / Business Relationship
• Lobbying
Public / Government Relationship
• Voting
• Electing officials
Business / Public Relationship
• Advertising
• Public Relations
• Other forms of communication
10
Government’s Nonregulatory
Influence on Business
Two Major Nonregulatory Issues
Industrial Policy
Privatization
@ [Link]
11
Industrial Policy
Any selective government measure
Industrial
that prevents or promotes changes
Policy in the structure of an economy.
12
Industrial Policy
Accelerationists
Accelerationists
Adjusters
Adjusters
Schools
Schools of
of Targeters
Targeters
Thought
Thought
Central
Central planners
planners
Bankers
Bankers
13
Industrial Policy
Arguments For Arguments Against
Decline of U.S. Reduces market efficiency
competitiveness Promotes political decisions
Use by other world Foreign success variable
governments
Various interventions create
Ad hoc industrial policy an industrial policy by default
14
Privatization
The process of “turning over to”
Privatization the private sector some function
that was previously handled
by government.
@ [Link]
15
Other Nonregulatory
Government Influences
Major employer Major competitor
Standard setter Loans and loan guarantees
Largest purchaser Taxation
Use of Subsidies Monetary policy
Transfer payments Moral suasion
16
Government’s Regulatory
Influence on Business
Factors to Consider Regarding
Government Regulation
Fair treatment
Protection
Scope
Cost
Burden
17
A Federal Regulatory Agency…
1. Has decision-making authority
2. Establishes standards or guidelines conferring benefits
and imposing restrictions on business conduct
3. Operates principally in the sphere of domestic business
activity
4. Has its head and / or members appointed by the president
(generally subject to Senate confirmation)
5. Has its legal procedures generally governed by
the Administrative Procedures Act
18
Reasons for Regulation
Controls
Controls natural
natural monopolies
monopolies
Controls
Controls negative
negative externalities
externalities
Achieves
Achieves social
social goals
goals
Controls
Controls excess
excess profits
profits
Controls
Controls excessive
excessive competition
competition
19
Types of Regulation
Interstate
Interstate Commerce
Commerce Commission
Commission
Economic
Economic Civil
Civil Aeronautics
Aeronautics Board
Board
Regulation
Regulation
Federal
Federal Communications
Communications Commission
Commission
Major costs of economic regulation are for:
1. Finance and banking
2. Industry-specific regulation
3. General business
20
Types of Regulation
Environmental
Environmental Protection
Protection Agency
Agency
Social
Social Occupational
Occupational Safety
Safety and
and
Regulation
Regulation Health
Health Administration
Administration
Equal
Equal Employment
Employment
Opportunity
Opportunity Commission
Commission
21
Comparison of Economic
and Social Regulation
Economic Regulations Social Regulations
Focus Market conditions; People in roles as
economic variables employees, consumers
and citizens
Affected Selected (railroads, Virtually all industries
Industries aeronautics,
communications)
Examples CAB EEOC, OSHA,
FCC CPSC, EPA
Current From regulation to Stable
Trend deregulation
Figure 11-3 22
Benefits of Regulation
Fair treatment of employees
Safer working conditions
Safer products
Cleaner air and water
23
Costs of Regulation
Direct costs
Indirect costs
Induced costs
• Effects
1. Innovation may be affected.
2. New investments in plant and equipment may be
affected.
3. Small business may be adversely affected.
24
Regulatory Spending in the U.S.
Figure 11-5 25
Deregulation
Purpose
Intended to increase competition with the expected
benefits of greater efficiency, lower prices, and
enhanced innovation.
Dilemma
Many competitors are unable to compete with the
dominant firms.
Must enhance competition without sacrificing applicable
social regulations (e.g., health and safety requirements).
26
Industries Affected by Deregulation
Trucking
Telecommunications
Financial Services
Electric Utilities
27
Key Terms
Individualistic ethic of Regulation
business Market failure
Collectivistic ethic of Natural monopoly
government Negative externalities
Industrial policy Social costs
Social goals
Accelerationists
Excess profits
Adjusters Excessive competition
Targeters Economic regulation
Central planners Social regulation
Bankers Direct costs
Indirect costs
Privatization
Induced costs
Federalization Deregulation
28
