Business, Government, and Regulation

Chapter 11
Prepared by Deborah Baker
Texas Christian University

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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.

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 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

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 Introduction to Chapter 11

The chapter examines the relationship between

business and government, and in particular, the
government’s role in influencing business.

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 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.

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 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?

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 Clash of Ethical Systems
Business Beliefs
 Individualistic ethic
 Maximizes concession to
self-interest
 Minimizes the load of
obligations society imposes
on the individual (personal
freedom)
 Emphasizes inequalities of
individuals
Figure 11-1
Government Beliefs
 Collectivistic ethic
 Subordinates individual goals
and self-interest to group
goals and group interests
 Maximizes obligations
assumed by the individual
and discouraging self-interest
 Emphasizes equality of
individuals
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 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
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 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

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 Government’s Nonregulatory
Influence on Business

Two Major Nonregulatory Issues

Industrial Policy

Privatization

@ http://www.USA.gov

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 Industrial Policy

Any selective government measure

Industrial
that prevents or promotes changes
Policy in the structure of an economy.

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 Industrial Policy

Accelerationists
Accelerationists

Adjusters
Adjusters

Schools
Schools of
of Targeters
Targeters
Thought
Thought
Central
Central planners
planners

Bankers
Bankers

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 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

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 Privatization

The process of “turning over to”

Privatization the private sector some function
that was previously handled
by government.

@ http://www.privatization.org

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 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

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 Government’s Regulatory
Influence on Business

Factors to Consider Regarding

Government Regulation
 Fair treatment
 Protection
 Scope
 Cost
 Burden

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 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

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 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

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 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

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 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

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 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

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 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.

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 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).
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 Industries Affected by Deregulation

 Trucking

 Telecommunications

 Financial Services

 Electric Utilities

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 Individualistic ethic of
business
 Collectivistic ethic of
government
 Industrial policy
 Accelerationists
 Adjusters
 Targeters
 Central planners
 Bankers
 Privatization
 Federalization
Key Terms
 Regulation
 Market failure
 Natural monopoly
 Negative externalities
 Social costs
 Social goals
 Excess profits
 Excessive competition
 Economic regulation
 Social regulation
 Direct costs
 Indirect costs
 Induced costs
 Deregulation
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